Mark J. Steel and Connie J. Steel - Page 5




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               On February 15, 1996, Messrs. Huse, Nymark, and Steel, the             
          directors and shareholders of BFI, consented to the assignment of           
          the lawsuit to Ottar, Inc., a corporation in which Messrs. Huse,            
          Nymark, and Steel owned all outstanding stock.  On February 16,             
          1996, BFI executed an assignment agreement which assigned BFI’s             
          rights in the lawsuit to Ottar for the benefit of the individual            
          partners of Bochica.7  Neither Bochica nor Ottar reported any tax           
          effects from this transaction.                                              
               On the same day as the assignment of the lawsuit, Bochica              
          and Norway closed on the stock sale.  Bochica used its entire               
          basis to compute its gain from the sale of the BFI stock.                   
          Petitioners recognized gain from the sale as part of their                  
          distributive share from Bochica.  At the close of BFI’s taxable             
          year on July 31, 1996, BFI’s earnings and profits exceeded the              
          value of the lawsuit.                                                       
               Following the assignment of the lawsuit, the Bochica                   
          partners were substituted as plaintiffs in the suit against the             
          insurer, and an amended complaint was filed to reflect the                  
          change.  In 1996, the insurer paid $172,175 on the insurance                
          claim.  This amount was distributed to the general partners                 
          according to their respective interests:                                    


               7BFI was an accrual basis taxpayer, and at the time of the             
          assignment it had not accrued income from the insurance claim               
          except for the May 1993 payment.  No income was accrued since the           
          value of the claim was disputed and could not be ascertained.               





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