Donald J. and Judith E. Peracchi - Page 1

                                 T.C. Memo. 1996-191                                  

                               UNITED STATES TAX COURT                                

                  DONALD J. AND JUDITH E. PERACCHI, Petitioners v.                    
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No.  22511-93.            Filed April 22, 1996.                 

                    Ps contributed three parcels of real property and                 
               their unsecured promissory note to their wholly owned                  
               corporation.  The parcels were encumbered by deeds of                  
               trust securing debt obligations in amounts that were in                
               excess of the combined adjusted basis of the parcels in                
               the hands of Ps.  The face amount of Ps' promissory                    
               note was greater than the excess of the encumbering                    
               liabilities over Ps adjusted basis in the properties.                  
               Held:  Ps failed to carry their burden of proving that                 
               their unsecured promissory note constituted genuine                    
               indebtedness.  Under sec. 357(c)(1), I.R.C., Ps are                    
               required to recognize gain measured by the excess of                   
               the debt obligations secured by deeds of trust over Ps'                
               adjusted basis in the real property.                                   

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