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will correspond to the amount or portion of the value of the
investment unit that is allocated to the options. Secs.
1273(b)(2), 1273(c)(2), 1275(a)(2)(B).
At trial and on brief, the parties herein agree that OID is
to be associated with the $26 million loan that was received from
FNBB to the extent that the options (to acquire stock in CC
Holdings) that were granted to FNBB had any ascertainable value
as of the date petitioner received the loan and the options were
issued to FNBB.3 The parties, however, disagree as to the value
of the options, and thus they disagree as to the existence and
amount of any OID associated with the loan.
Petitioner values the options at or exceeding $2.6 million
and argues that it should be entitled to deduct at least $2.6
million as OID over the separate terms of the 3 loans that made
up the total $26 million loan.
Respondent argues that no OID was associated with the $26
million loan, and, alternatively, if OID was incurred, the amount
thereof was no more than $31,850.
The evidence establishes, and the parties agree, that the
options to acquire stock in CC Holdings that were granted to FNBB
were issued “at the money” with a $500 per share exercise price.
3 As indicated, after the LBO, petitioner became liable for
the debts of CC Acquisition. For convenience, in discussing the
OID issue, we substitute petitioner for CC Acquisition as the
debtor on the loan.
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