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property through the bargain sale. The first option allowed
Corbin West to purchase the property for $1,760,000. The
evidence suggests that this price was negotiated at arm's length.
It, therefore, appears that the purchase price greatly exceeded
the fair market value of the property at the time of Corbin
West's acquisition, and the note was unlikely to be repaid from
its inception.
Furthermore, the repayment of the note was subordinate to
repayment of the following: (1) The existing first mortgage of
approximately $873,000, (2) the second mortgage of $920,000, (3)
the limited partners' loans of $705,600 plus 8 percent interest,
(4) the limited partners' capital contributions of $258,900, and
(5) the general partners' loans of $500,000 plus interest. These
amounts total $3,257,500.
The preexisting debt on the property and the obligations to
the partners already exceeded by a large amount the fair market
value of the property at the time of Corbin West's purchase, and,
as noted above, the repayment of the note was subordinate to
repayment of that debt and those partner obligations. Therefore,
there was no reasonable likelihood that the note would be repaid.
See Estate of Franklin v. Commissioner, supra; Waddell v.
Commissioner, supra.
Additionally, it appears from the record that the property
was the sole asset held by Corbin West; therefore, even if Corbin
West decided to pay off the note, it is unlikely that Corbin West
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