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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.
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.
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