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to violate the stipulation of facts as to Al Zuni’s cost basis in
the jewelry inventory is rejected.
We sustain respondent’s adjustment charging Al Zuni with
income in the amount of $133,413 with regard to the September 15,
1992, transfer of jewelry inventory from Al Zuni to Khalaf.
Capital Gain Income of $474,903 Charged to Khalaf
Section 331 provides that amounts received by shareholders
in liquidation of a corporation shall be treated as full payment
in exchange for the shareholders' shares of stock in the
corporation. Under section 1001, a gain or loss realized by
shareholders upon receipt of property in complete liquidation of
a corporation is determined by comparing the value of the
property distributed with the cost basis the shareholders had in
their shares of stock.
We have concluded that the jewelry inventory Khalaf received
from Al Zuni in September of 1992 had a value of $671,413.
Respondent reduced this amount by the $196,510 principal amount
of the loan that Al Zuni apparently owed to Khalaf. As
explained, respondent treated Khalaf as having a zero basis in
his stock in Al Zuni, and respondent calculated that Khalaf
realized $474,903 in capital gain income on receipt from Al Zuni
of the jewelry inventory. The only issue remaining with regard
to this income adjustment is the amount of Khalaf’s cost basis in
his shares of stock in Al Zuni.
Respondent contends that Khalaf has not established that he
had any cost basis in his shares of stock in Al Zuni and that the
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