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Properties and the underlying land, and Cal Fed received the
benefits of ownership. As of November 1, 1990, no additional
funding was available, and the individuals involved with
Tanglewood and L&C Springs knew that no further funds would
become available and agreed that a foreclosure sale would occur
and that no right of redemption was available. Only formal,
nominal title to the property was withheld from Cal Fed until
1991. By November 1, 1990, L&C Springs had effectively abandoned
its leasehold interest in the L&C Properties and the related
land, and L&C Springs was relieved by such abandonment of its
nonrecourse debt obligation to Tanglewood.
Based on the above analysis, L&C Springs is required to
realize, as of November 1, 1990, income associated with the
termination of its interest in the L&C Properties and with the
relief from its $2,250,000 debt obligation to Tanglewood on the
L&C Note. Also, any interest expense deductions and depreciation
deductions claimed by L&C Springs for periods of time after
October 31, 1990, are to be disallowed.5
Decisions will be entered
under Rule 155.
5 Petitioners’ counsel represent that L&C Springs should have
a limited right under mitigation to open up L&C Springs’ 1991
taxable year to remove the gain reported for 1991 relating to the
transaction that we treat herein as taxable in 1990. Our opinion
herein, however, is not dependent upon correction of petitioners’
treatment of this item for 1991.
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