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Petitioners take the position that they did not realize (nor
were they required to recognize) a gain when they transferred
property, including their $1,060,000 Capital Note, to their
wholly owned corporation, and that, for purposes of section
357(c), the adjusted basis of their Capital Note was its face
amount and not zero. Petitioners reach these conclusions by a
complicated route. They make the following arguments:
1. Since NAC Corporation acquired the 5118 Clinton Way
buildings and improvements subject only to $326,654.50 of the
unpaid principal balance of the Standard Insurance Note, an
amount not in excess of the adjusted basis of the 5118 Clinton
Way buildings and improvements, no gain should be recognized by
petitioners under section 357(c).
In so doing, petitioners attempt to apply the rationale of
the wraparound mortgage-installment sale line of cases, of which
the progenitor is Stonecrest Corp. v. Commissioner, 24 T.C. 659
(1955); petitioners argue that NAC Corporation acquired the
Clinton Way Property "subject to only $326,654.50 of the unpaid
principal balance of the Standard Insurance Note (the
$1,386,654.50 unpaid principal balance of the Standard Insurance
Note, minus the $1,060,000 face amount of the Capital Note)," and
that the sum of the Clinton Way and Fresno/Herndon liabilities,
$488,212.78 ($326,654.50 plus $161,558.28), was thus less than
the sum of the adjusted bases of the three properties,
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