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it should either liquidate or sell USMP. Petitioner estimated
that its losses upon liquidation would be $495,000, including
$148,000 as the estimated cost of discharging employees under
Portuguese labor laws. Faced with these costs, petitioner
decided to sell USMP even if USMP had to be sold for nominal or
no consideration.
On October 24, 1984, petitioner sold all of its USMP stock
to a group of Portuguese businessmen in exchange for 1,000
escudos ($6.17) and petitioner's waiver of $110,000 in payables
that USMP owed petitioner. The buyers personally guaranteed
payment of the remaining payables that USMP owed petitioner.
These liabilities were valued at approximately $220,000. At the
time of the sale, petitioner's basis in the USMP stock was
$802,273.
On its balance sheet dated October 25, 1984, USMP reported a
net worth of 4,743,000 escudos ($29,501). The balance sheet
included a reduction in current liabilities of 17,685,000 escudos
to reflect petitioner's forgiveness of the $110,000 payables.
Without this reduction, USMP's net worth was negative 12,942,000
escudos ($80,499).
OPINION
The sole issue is whether petitioner's USMP stock became
worthless in 1984. If so, both parties agree that section 165
entitles petitioner to an ordinary loss equal to its adjusted
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