-237-
V. Basis Arguments
Respondent makes alternative arguments relating to the SMHC
receivables; i.e., the $974 million in receivables from Generale
Bank and the $79 million receivable from CLIS. In essence,
respondent argues that even if we were to respect the form of the
transaction, the banks’ purported contributions of the SMHC
receivables to SMP should not create basis in SMP, because the
receivables were worthless when the banks made the purported
contributions. Although this argument, if successful, would
prove fatal to all the built-in losses associated with all the
SMHC receivables, respondent singles out the $79 million
receivable for additional punishment: Respondent argues that SMP
obtained no basis in the $79 million receivable, because it was
not bona fide debt of SMHC and could not be contributed to SMP.
For the sake of completeness, we address each of these
alternative arguments below.
A. Worthlessness Issue
For the reasons described below, we hold that the SMHC
receivables were worthless when Generale Bank and CLIS
purportedly contributed them to SMP. Consequently, the
receivables did not constitute a “contribution of property”
within the meaning of section 721 and the partnership basis
rules; SMP obtained no basis in the SMHC receivables pursuant to
section 723.
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