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section 351 transaction, the corporation would be entitled to an
upward basis adjustment in the property received in the
transaction in the same amount as the gain recognized. The
answer to amendment did not, however, specify the assets eligible
for the basis adjustment or the amount of any such adjustment.
The corporation filed a motion for a more definite
statement, requesting that respondent identify the assets as to
which the corporation would receive a section 362(a) adjustment,
in what proportion, and over what period of time that adjustment
would be depreciable. The motion was granted in part, and
respondent was ordered to file a statement indicating
respondent's position as to the appropriate amount and allocation
of the section 362(a) adjustment.
Respondent subsequently filed an amended answer to the
corporation's amendment to petition, responding that the
appropriate amount of the section 362 adjustment was either
$280,477 or the actual amount of net capital gain ultimately
recognized by the Bowdens on the transfer of assets to the
corporation. Respondent also determined that the section 362
basis adjustment should be allocated to Mr. Bowden's rights under
the contract with Farmer's Insurance Group. The Bowdens had
stated the basis of this asset as $245,000 in their 1991 tax
return, but respondent subsequently determined the basis to be
zero.
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Last modified: May 25, 2011