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Section 1011 provides that the adjusted basis for
determining the gain or loss from the sale or other disposition
of property is the basis determined under section 1012, adjusted
as provided in section 1016. Section 1012 provides that the
basis of property is the cost of the property and under section
362(a) such basis in a transferor carries over to a corporation
where such property is contributed to the corporation for stock
under section 351.
The transaction involved here is a classic example of loss-
buying. It was a premeditated and abusive tax scheme structured
by Kanter for the sole purpose of obtaining an enormous and
unjustified loss deduction on behalf of his controlled
corporation, IRA. IRA became involved in the matter at the
direction of Kanter, who acknowledged that the transaction at
issue was hurried and there had been no due diligence with
respect thereto.
The entire scheme--a purported section 351 exchange and
subsequent disposition (sale and assignment)--took less than 30
days. The reality of the transaction is that IRA paid $60,000
cash on December 1, 1988, for an ordinary loss supposedly
realized on December 30, 1988, in the amount of $1,073,835 that
was claimed on IRA's 1988 Federal income tax return.
IRA failed to present any evidence to support the legitimacy
of the installment promissory note or that the note represented
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