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section 331 in complete liquidation of Al Zuni, which treatment
petitioners do not seriously challenge. Rather, primarily
petitioners challenge respondent’s determination of the fair
market value of the jewelry inventory transferred to Khalaf, of
Al Zuni’s cost basis in the jewelry inventory, and of Khalaf’s
cost basis in his shares of stock in Al Zuni.
Generally, in analyzing the factual issue of whether a
transfer of property to shareholders constitutes a distribution
under section 331 in complete liquidation of a closely held
corporation, it is the intent to shut down and liquidate the
corporation that is controlling, not whether a plan of
liquidation was formally adopted. See Genecov v. United States,
412 F.2d 556, 561-562 (5th Cir. 1969); Kennemer v. Commissioner,
96 F.2d 177, 178 (5th Cir. 1938), affg. 35 B.T.A. 415 (1937).
The transfer on September 15, 1992, to Khalaf of all of
Al Zuni’s extant jewelry inventory, the termination of any
further business activity of Al Zuni, and the failure of Khalaf
to make any payments on the $460,600 loan purportedly owed to
Al Zuni relating to the transfer constitute strong evidence that
the transfer of Al Zuni’s jewelry inventory to Khalaf constituted
a liquidation of Al Zuni and a distribution to Khalaf, not a
sale. We so hold.
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