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the property from Norman pursuant to the option with the NBHA for
$1,808,500. Corbin West paid the $1,808,500 by assuming the
existing first mortgage of $873,000, obtaining a second mortgage
of $920,000, and paying the balance from the limited partners'
contributions. Corbin West also gave the NBHA a promissory note
(the note) for $1,341,500 (the difference between the alleged
fair market value of $3,150,000 and the amount already paid of
$1,808,500).
The note was recourse against Corbin West but not against
the general partner or any of the limited partners. The note was
not secured by the property. Interest and principal on the note
were not payable until the earlier of the sale of the property or
January 1, 2011. The note was subordinated to repayment of the
first and second mortgages, repayment of loans from the general
partner plus interest, and repayment of the limited partners'
capital contributions and loans plus 8 percent interest. The
NBHA did not record the note as an asset on its financial
statements.
On its Federal income tax returns for 1990, 1991, 1992, and
1993, Corbin West included the note in the property's basis for
purposes of determining its depreciation deductions and low-
income housing credits. On these returns, Corbin West also
claimed accrued interest deductions related to the note of
$135,000, $147,492, $160,719, and $175,323, respectively.
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Last modified: May 25, 2011