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transaction doctrine is inapplicable. Mr. Premji bears the
burden of proof on this issue. Rule 142(a).
The open transaction doctrine permits a taxpayer who
receives installment payments on the sale or other disposition of
property to recover his basis prior to recognizing gain where the
amount realized is not susceptible to valuation. See Burnet v.
Logan, supra at 413. It has been applied to purchasers of
installment obligations at a discount to enable the taxpayer to
recover the cost and a major portion of the discount before
recognizing gain where there was no reasonable certainty that all
payments on the obligation would be made. See Liftin v.
Commissioner, supra at 911; cf. Underhill v. Commissioner, supra
at 492-496. Thus, the essence of the open transaction doctrine
is uncertainty that the taxpayer will recover the full amount of
his basis or cost.
Mr. Premji invested $58,000 with M&L on four separate
occasions by cashier's check as follows:
July 31, 1990 $20,000
August 30, 1990 4,000
September 5, 1990 14,000
September 13, 1990 20,000
$58,000
Of the $58,000 total amount, we are here concerned with only
the $20,000 invested on July 31, 1990, because that is the
principal that gave rise to the $8,000 in interest Mr. Premji
actually received.
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