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of Amity in order to secure certain indebtedness that the
Corporation owed to the Bank of Amity.
On December 30, 1992, to provide operating capital for the
Corporation, the Bank of Amity extended to the Corporation a
$600,000 line of credit. To secure repayment of funds actually
provided to the Corporation under the line of credit, the Bank of
Amity required each petitioner to sign personal guaranties for
repayment of such funds and to mortgage in favor of the Bank of
Amity certain additional real property they owned with a fair
market value, on December 23, 1993, of $570,500.
In the subsequent years through the date of trial, all
payments to the Bank of Amity that were made on the above
indebtedness were made by the Corporation. The Bank of Amity has
not foreclosed on the loans made to the Corporation.
On or shortly before December 31, 1992, the Partnership
transferred all but one of its assets to the Corporation, the
Corporation assumed all liabilities of the Partnership, and the
Corporation took over ownership and operation of the
Partnership's trucking business. The Corporation transferred no
cash to the Partnership. For income tax purposes, petitioners
treated this transaction as a sale of assets by the Partnership
to the Corporation for no gain to the Partnership (i.e., the
Partnership treated the amount of the liabilities assumed by the
Corporation as equal to the Partnership's tax basis in the assets
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