Jerry S. Payne - Page 27

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          capital gain under section 356(a)(1)(B) and (2).15  That argument           
          depends upon a finding that the $40,011 of assets listed on the             
          1989 return balance sheet continued to exist in November 1990,              
          and were, in fact, distributed to petitioner at that time.                  
          Petitioner denies that he received any distribution from 2618 in            
          connection with its transfer of the club to JKP.                            
               Respondent simply states that the assets reflected on the              
          1989 return balance sheet “must have gone somewhere, and the only           
          logical recipient would be the petitioner as the sole owner of              
          the stock of * * * [2618].”  A more plausible argument (and a               
          reasonable inference) is that such assets (assuming they still              
          existed in November 1990) were transferred to JKP as part of                
          2618's transfer of the operation of the club.  That is certainly            
          true with respect to such business-related assets as                        
          “inventories” (presumably consisting of food and liquor)                    
          ($4,175), current accounts receivable ($1,296), and “depreciable            
          assets less accumulated depreciation” ($8,647) (an asset the very           

               15  As we have previously noted in discussing the                      
          constructive dividend issue (section II, supra), petitioner had a           
          zero basis for his 2618 stock, and respondent concedes that 2618            
          was without earnings and profits on the date of the alleged                 
          distribution.  Under such circumstances, sec. 356(a)(1)(B)                  
          provides for gain recognition up to the “sum of * * * money and             
          the fair market value of * * * property” distributed, and sec.              
          356(a)(2) provides that “the gain recognized * * * shall be                 
          treated as gain from the exchange of property.”  Because                    
          petitioner’s holding period for his 2618 stock exceeded 12 months           
          as of November 1990, such gain would be long-term capital gain.             
          See Gross v. Commissioner, 23 T.C. 756, 768 (1955), affd. 236               
          F.2d 612 (2d Cir. 1956).                                                    

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