- 10 - shareholders of a corporation (Spalding) that was the sole shareholder of another corporation (INI). Mr. Jones and Mr. Cates had differences of opinion regarding the management and operation of Spalding and INI, so they decided to separate. They agreed that Mr. Cates would own 100 percent of Spalding and Mr. Jones would own 100 percent of INI. One of the assets of Spalding was the Spalding Building. As part of the breakup, Spalding transferred the Spalding Building, subject to the liability associated with the property, to INI. The construction lender on the Spalding Building (Lender) held a security interest in the Spalding Building. Lender also had lent money to a company (Development) owned by Mr. Jones for the construction of 15 townhomes. INI defaulted on its obligation to repay the loan secured by the Spalding Building. In lieu of foreclosure, and in satisfaction of the construction loan, INI transferred the Spalding Building to Lender; however, the fair market value of the Spalding Building exceeded the balance outstanding on the construction loan by $170,000. At this time, Development owed Lender $170,000 related to the construction of the 15 townhomes (the Development debt). Instead of remitting $170,000 to INI, Lender agreed to discharge Development from the Development debt. We held that INI, the transferor, did not have to include the discharged Development debt in its amount realized becausePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011