Joel and Paula Friedland - Page 10




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          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 because              






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