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obligation of Peoplefeeders. Petitioner is not entitled to the
claimed $3,751,930 bad debt deduction and the related NOL
carrybacks and carryforwards.
We note that respondent makes two alternative arguments --
one factual and the other legal. Respondent’s alternative
factual argument is that if the $3,751,930 is to be regarded as a
genuine debt obligation of Peoplefeeders to Square Pan, as
petitioner contends, in May of 1992 the full $3,751,930 principal
amount of that debt obligation would constitute a loan receivable
on the books of Square Pan and the value of the stock in Square
Pan that Peoplefeeders owned would reflect that $3,751,930
receivable, making Peoplefeeders no longer insolvent, and
requiring Peoplefeeders, under sections 61(a)(12) and 108(a), to
recognize $3,751,930 in discharge of indebtedness income.
Respondent’s alternative legal argument is that if the
$3,751,930 is to be regarded as a genuine debt obligation of
Peoplefeeders to Square Pan, if Peoplefeeders is to be regarded
as insolvent, and if, under the insolvency exception of
section 108(a)(1)(B), Peoplefeeders is to be allowed to exclude
from income the $3,751,930 discharge of indebtedness income,
petitioner’s consolidated group of taxpayers filing the 1992
corporate Federal income tax return would be required under
section 108(b) to reduce appropriate tax attributes (specifically
the amount of the NOL produced by the $3,751,930 bad debt
deduction) by the $3,751,930 amount of the excluded discharge of
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