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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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