- 49 -
Respondent’s reliance on G�nther’s German commercial report
for its FYE April 30, 1992, is likewise unsupported. Petitioner
has amply demonstrated that G�nther’s FYE April 30, 1992,
commercial report used the book values of G�nther’s assets
instead of fair market values and that it did not realistically
present G�nther’s true financial condition or adequately state
the value of petitioner’s investment in G�nther.
We hold that, because G�nther’s liabilities substantially
exceeded the fair market value of its assets as of May 31, 1992,
G�nther lacked liquidation value as of May 31, 1992.
3. Did G�nther Lack Potential Value as of
May 31, 1992?
A corporation lacks potential value when there is no
reasonable expectation that assets will exceed liabilities in the
future. Steadman v. Commissioner, 50 T.C. at 376. Generally, a
lack of potential value is established by showing that an
identifiable event, such as bankruptcy, liquidation, the
appointment of a receiver, or the cessation of normal business
operations, effectively has destroyed the corporation’s potential
value. Id. at 376-377; Morton v. Commissioner, 38 B.T.A. at
1279. Where, however, a corporation’s liabilities so greatly
exceed the value of the corporation’s assets and the
corporation’s assets and business are such that no reasonable
expectation of profit to the shareholders exists, the inability
of a taxpayer to point to an identifiable event as proof of a
Page: Previous 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 NextLast modified: May 25, 2011