Al Zuni of Arizona, Inc. - Page 10

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          Income of $133,413 Charged to Al Zuni                                       
               Section 336(a) provides generally that gain or loss is to be           
          recognized by a corporation on distribution of its property in              
          complete liquidation.  The gain is to be computed based on the              
          fair market value of the property distributed over the                      
          corporation’s cost basis in the property.                                   
               Fair market value is defined as the price at which property            
          would change hands between willing buyers and sellers, neither              
          being under any compulsion to buy or to sell and both having                
          reasonable knowledge of relevant facts.  See United States v.               
          Cartwright, 411 U.S. 546, 551 (1973); Collins v. Commissioner,              
          3 F.3d 625, 633 (2d Cir. 1993), affg. T.C. Memo. 1992-478; Estate           
          of Hall v. Commissioner, 92 T.C. 312, 335 (1989).                           
               On the evidence before us in these cases, the best                     
          indication of the fair market value of the jewelry inventory                
          transferred to Khalaf is found in the representations of value              
          set forth in Al Zuni's and in American Silver’s documentation               
          relating to the transaction at issue in these cases, particularly           
          the minutes of Al Zuni’s September 15, 1992, board of directors’            
          meeting which reflect a value for the jewelry inventory                     
          transferred to Khalaf of $671,413.                                          
               At trial, Khalaf opined generally as to the decline during             
          the 1980's in the value of Native American jewelry to the effect            
          that such jewelry purchased in the early to mid-1980's would, in            
          1998 (at the time of the trial), be worth only 10 to 30 percent             




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