- 8 - American Silver’s receipt on September 24, 1992, of the jewelry inventory from Khalaf. On audit of Al Zuni, respondent determined that on September 15, 1992, Al Zuni distributed, rather than sold, all of its extant jewelry inventory to Khalaf, that the September 15, 1992, transaction between Al Zuni and Khalaf constituted a distribution to Khalaf in complete liquidation of Al Zuni, that the jewelry inventory Al Zuni transferred to Khalaf had a cost basis to Al Zuni of $538,000, a total fair market value upon distribution of $671,413, and that Al Zuni therefore realized on the distribution business income of $133,413. On audit of Khalaf, respondent determined that Khalaf had a cost basis of zero in his shares of stock in Al Zuni, that the value of the jewelry inventory Khalaf received from Al Zuni on September 15, 1992, was $671,413, that a portion of the jewelry inventory Khalaf received represented a repayment to Khalaf of the $196,510 purported loan obligation Al Zuni owed to Khalaf, and that the balance of the jewelry inventory Khalaf received with a value of $474,903 represented taxable capital gain income to Khalaf received in exchange for his shares of stock in Al Zuni. OPINION Nature of Transaction Respondent treats the September 15, 1992, transfer of jewelry inventory from Al Zuni to Khalaf as a distribution underPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
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