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1. Contribution of Worthless Assets
Respondent’s threshold legal premise is that a contribution
of worthless debts does not constitute a “contribution of
property” for purposes of section 721 and the partnership basis
rules. Respondent contends that when worthless assets are
contributed to a partnership “there is no contribution in the
true sense of the word as nothing of value is transferred to it.”
In making this contention, respondent relies on our holding in
Seaboard Commercial Corp. v. Commissioner, 28 T.C. 1034 (1957).
In Seaboard Commercial Corp., we held that a transfer of
worthless stock to a corporation was not a “contribution to
capital” within the meaning of the corporate carryover basis
rules.167 We stated that it would be “a perversion of the
statutory language” to consider a contribution of a worthless
asset as coming within the phrase “contribution to capital”. Id.
at 1054. We further stated: “A contribution of zero would not
really be a contribution”. Id.
Petitioner contends that the SMHC receivables constitute
“property” within the meaning of section 721 and the partnership
basis rules, irrespective of whether the receivables were
worthless. Petitioner cites Crane v. Commissioner, 331 U.S. 1
167 Sec. 113(a)(8)(B) of the 1939 Code provided that if
property were acquired by a corporation as paid-in surplus or as
a contribution to capital, then the corporation’s basis would be
the same as it was in the transferor’s hands.
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