-240-
and Partners, par. 4.02[1], at 4-15 (3d ed. 1997) (“Regardless of
how broadly the term ‘property’ is defined under � 721, it is
obvious that � 721 does not apply unless the person receiving the
partnership interest surrenders something of value to the
partnership.”).
2. Worthlessness of Debts
Respondent argues that the $974 million in receivables from
Generale Bank and the $79 million receivable from CLIS were
worthless at the time of Generale Bank’s and CLIS’s contributions
to SMP because the SMHC assets underlying them had no value. We
agree.
The parties agree that in determining whether the
receivables (debts from SMHC’s perspective) were worthless when
they were contributed to SMP, the principles of section 166(a)(1)
apply by analogy.168 Under those principles, a debt becomes
worthless when identifiable events clearly mark the futility of
any hope of further recovery. See James A. Messer Co. v.
Commissioner, 57 T.C. 848, 861 (1972). A worthless debt lacks
both potential value and current liquid value. Id. Whether a
debt has become worthless is a question of fact to be determined
on the basis of objective factors, not on the taxpayer’s
subjective judgment as to the worthlessness of the debt.
168 Sec. 166(a)(1) allows a deduction for any debt which
becomes worthless within the taxable year.
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