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has made all payments on the indebtedness to the bank.
Petitioners could have structured the indebtedness as
indebtedness to themselves, but petitioners chose to avoid
primary liability thereon.
Petitioners' secondary liability, as guarantors, may have
been necessary for bank approval of the indebtedness, but until
or unless petitioners are called upon to pay on the indebtedness,
petitioners' secondary liability is not enough, for tax purposes,
to treat the indebtedness as if made to petitioners. Petitioners
have not established that they incurred an economic outlay with
regard to the Corporation's indebtedness to the Bank of Amity,
and petitioners are not entitled to increase their tax bases in
their investments in the Corporation with respect thereto.
Because assets of the Partnership were transferred to the
Corporation, petitioners also contend that they are entitled to
increase their tax bases in the Corporation (1) by the amount
that the value of the assets the Partnership transferred to the
Corporation exceeds the amount of the Partnership’s liabilities
assumed by the Corporation, (2) by the amount of any Partnership
“equity” transferred to the Corporation, and (3) by the amount of
certain additional amounts allegedly owed to the Partnership.
In order to avoid recognition of partnership capital gain on
the transfer of assets to the Corporation, the partners of the
Partnership structured the transfer as a sale of assets to the
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