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In summary, we hold that IRA is not entitled to bad debt
deductions for partial worthlessness of the notes receivable in
1987.
Issue 28. Whether IRA Is Entitled to Certain Capital Losses for
1987
FINDINGS OF FACT
On its Federal income tax return for 1987, IRA reported
capital losses as follows:
Gross
Date Date Sale
Description Acquired Sold Price Basis Loss
Int'l Films (IFI) 8/2/761987 -- $65,000 ($65,000)
Brickell Biscayne 198312/22/87 $1,000 176,073 (175,073)
Sandberg Village 197912/22/87 1,000 492,691 (491,691)
1984 Devel. Ltd. 198212/22/87 1,000 23,862 (22,862)
Total 3,000 757,626 (754,626)
In the notice of deficiency, respondent disallowed the
claimed capital losses on the grounds that IRA did not establish
its basis in the assets sold or disposed of, IRA did not
demonstrate that the transactions had any substance, and the
sales were to a related party and were subject to section 267,
which disallows losses between related parties.
IRA's records reflect that it sold its 1,500 shares of IFI
stock to Gallenberger for $1 on September 28, 1988. An entry
recording the September 1988 sale to Gallenberger was made on
IRA's 1988 ledger. Subsequently, adjusting journal entries were
made to IRA's books and records to reverse the 1988 entry as a
sale of the stock and to reflect on IRA's books a writeoff of the
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