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to a stepped-up basis equal to the fair market value of the
shares when they disposed of the stock.4
Petitioners assert that if the transfers of stock are bona
fide loans, their basis is calculated as the fair market value of
the shares. If the transfers are gifts, as respondent argues,
petitioners' basis is the transferred basis of the donor. Sec.
1015(a).
We agree with respondent and hold that the shares of Price
Co. stock transferred to petitioners in October and December 1987
were gifts and not loans. As gifts, petitioners are not entitled
to a stepped-up basis in 7,000 shares, as they claim. Therefore,
petitioners' basis in these shares is the same as their basis in
other shares of Price Co. stock which they acknowledge were
received as gifts. Since we find that all of petitioners' Price
Co. shares were acquired by gift, petitioners' adjusted basis in
the shares is the same as that of the donor, Drachman. Sec.
1015(a). Petitioner testified, and the account statements
indicate that, Drachman's basis in the Price Co. stock was 10
cents per share. Accordingly, petitioners' carryover basis in
4 The purported loan documents indicate that one of the
conditions of the transfers was "That the stock will be returned
to [Drachman] upon request." This raises the questions of
whether petitioners were required to report income from discharge
of indebtedness when they sold the stock, or whether they had the
right to sell the stock at all. Since we hold that all of
petitioners' Price Co. stock was acquired by gift, we need not
decide these questions.
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