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adjusted basis in the property over the amount realized. As used
in section 1001(a), the term “amount realized” is defined in
section 1001(b). In pertinent part, that definition is: “The
amount realized from the sale or other disposition of property
shall be the sum of any money received plus the fair market value
of the property (other than money) received.” Section 1.1001-2,
Income Tax Regs., addresses the discharge of liabilities in
connection with the disposition of property. Paragraph (a)(1) of
section 1.1001-2, Income Tax Regs., provides the general rule
that the amount realized from the sale or other disposition of
property includes the amount of liabilities from which the
transferor is discharged as a result of the disposition.
Paragraph (a)(4) of section 1.1001-2, Income Tax Regs., provides
that, for purposes of that section, the sale or other disposition
of property that secures a nonrecourse liability discharges that
liability. Paragraph (b) of section 1.1001-2, Income Tax Regs.,
provides that, generally, the fair market value of the security
at the time of sale is not relevant for determining the amount of
liabilities from which the taxpayer is discharged, or treated as
discharged.
C. Discussion
Respondent’s position is that Wedgewood did not realize any
loss. Petitioner’s position is that, since Wedgewood’s adjusted
basis in the assets exceeded the $1 received pursuant to the
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