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make the Chef-Reddy payments is the kind of promise to pay that
is frequently transferred to lenders or investors at a discount
not substantially greater than the generally prevailing premium
for the use of money. We therefore find that the obligation to
make the Chef-Reddy payments is not the equivalent of cash.
C. Cottage Sav. Association v. Commissioner
Petitioners attempt to buttress their argument by citing
Cottage Sav. Association v. Commissioner, 499 U.S. 554 (1991)
(exchange of property gives rise to a realization event under
section 1001 so long as the exchanged properties are “materially
different”; i.e., so long as they embody a legally distinct
entitlement). Petitioners argue that, when Larry Monico
“exchanged the account receivable for the promissory note, the
Petitioners realized and should have recognized income.”
Petitioners have failed to prove that there was any such
exchange. Moreover, they have failed to prove any material
change in the obligation. Cottage Savings Association is
inapplicable.
II. Conclusion
Petitioners have failed to prove that the Chef-Reddy
payments constitute a return of capital. That being the
exclusive basis on which they assigned error to respondent’s
determination of a deficiency with respect to the Chef-Reddy
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