Donald J. and Judith E. Peracchi - Page 7

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          the Capital Note would be classified as a "nonadmitted asset                
          because it was unsecured;" thus, it would not be treated as an              
          asset of NALICO for purposes of computing its capital-to-premium            
          ratio as of December 31, 1989.                                              
               The parties agree that the transactions under scrutiny                 
          qualify under the nonrecognition provision of section 351, except           
          as that section may be limited by section 357(a) and (c)(1).                
          They also agree that section 357(b) is not applicable, but                  
          disagree as to the application of sections 357(a) and 357(c)(1).            
               SEC. 357(a) provides:                                                  

                    (a)  General Rule.--Except as provided in                         
               subsections (b) and (c), if--                                          
                         (1)  the taxpayer receives property                          
                    which would be permitted to be received under                     
                    section 351, 361, 371, or 374, without the                        
                    recognition of gain if it were the sole                           
                    consideration, and                                                
                         (2)  as part of the consideration,                           
                    another party to the exchange assumes a                           
                    liability of the taxpayer, or acquires from                       
                    the taxpayer property subject to a liability,                     
               then such assumption or acquisition shall not be                       
               treated as money or other property, and shall not                      
               prevent the exchange from being within the provisions                  
               of section 351, 361, 371, or 374, as the case may be.                  
               Section 357(c)(1) provides:                                            
                         (1) In General.--In the case of an exchange--                
                              (A)  to which section 351                               
                         applies, or                                                  






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