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1. Did G�nther Have Value During FYE 1991?
As shown in the consolidated report column of G�nther’s
balance sheet as of May 31, 1991, G�nther had a positive net
worth of $1,405,422. Respondent does not dispute that G�nther
had value during FYE May 31, 1992; it argues only that petitioner
has failed to prove G�nther was worthless on May 31, 1992.
2. Did G�nther Lack Liquidation Value As of May 31,
1992?
A corporation lacks liquidation value when its liabilities
exceed the value of its assets. Steadman v. Commissioner, supra
at 376-377. Following an investigation, petitioner concluded
that G�nther’s liabilities substantially exceeded the aggregate
fair market value of G�nther’s assets and that petitioner would
receive nothing upon G�nther’s liquidation.30 In fact,
petitioner has demonstrated to our satisfaction that its
conclusion was accurate and that its management searched
diligently for any of G�nther’s assets that had a fair market
value in excess of book value which could be liquidated to pay
down the guaranteed bank loans and mitigate petitioner’s losses
from its investment in G�nther.
30G�nther’s consolidated balance sheet as of May 31, 1992,
shows a deficit in shareholder’s equity of $17,010,232. Our
conclusion that the intercompany advances were contributions to
capital and not debt requires an adjustment in that figure, but,
even after adjustment, G�nther still had a substantial net
deficit as of May 31, 1992.
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