John Bowden, Inc. - Page 6

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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              

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Last modified: May 25, 2011