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the decision of the U.S. Court of Appeals for the Ninth Circuit
(the court to which this case would normally be appealed) in Owen
v. Commissioner, 881 F.2d 832 (9th Cir. 1989), affg. T.C. Memo.
1987-375.
In Owen, taxpayer was an equal partner with McEachron in
McO, a general partnership engaged in the seismic drilling
business. In 1980, the partners borrowed money to buy drilling
equipment, secured the loan by the equipment, gave their personal
guaranties to the lender, and placed title to the equipment in
McO. In 1981 the partnership transferred the equipment to the
partners' wholly owned corporation, at which time the
indebtedness secured by the assets exceeded the assets' adjusted
basis. The Ninth Circuit affirmed our holding that section
357(c)(1) applied. The court held that "'So long as the
transferred property remains liable on the debt, then, such debt
can be a section 357(c) liability even if the * * * [taxpayer]
retained personal, unrelieved liability on it.'" 881 F.2d at
835, quoting Smith v. Commissioner, 84 T.C. 889, 909 (1985), and
citing additional decisions to the same effect.
In the case before us, the Standard Insurance Note was
secured by the deed of trust encumbering the Clinton Way
Property, and in the event of a default by NAC Corporation,
Standard Insurance would unquestionably have looked in the first
instance to the Clinton Way Property, the security under the
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