-243-
property must be worthless in a relative and an absolute sense.”
See Buchanan v. United States, supra at 201.
Whether we compare the value of the EBD film rights, the
Carolco securities, and the NOLs in SMHC to the size of the
receivables or to a zero figure, we reach the same conclusion.
We conclude that the receivables were worthless both in a
relative and an absolute sense.170 We hold that Generale Bank’s
and CLIS’s purported contributions of the SMHC receivables to SMP
were not a “contribution of property” within the meaning of
section 721 and the partnership basis rules, and that SMP
obtained no basis in those receivables pursuant to section 723.171
170 Petitioner also contends that there was “potential value”
in SMHC. Petitioner claims that “Messrs. Ackerman and Lerner
(through Rockport) had expressed an interest in SMHC stock and
had presented a proposal to the Banks which would entail the
continuation and rejuvenation of that company, rather than its
destruction.” For the reasons stated supra, we find that the
Ackerman group, CDR, and the banks did not intend to engage in
any film business. Moreover, SMHC was virtually devoid of
assets, and any recovery in that company would have required an
infusion of new capital.
171 Respondent argues, alternatively, that under sec.
1016(b), Generale Bank’s and CLIS’s bases in the SMHC receivables
should have been adjusted to account for worthlessness deductions
that Generale Bank and CLIS could have taken, but did not. Sec.
1016(b) provides that, in the case of substituted basis property,
proper adjustments to basis shall be made in respect of the
period during which the property was held by the transferor,
donor, or grantor. We cannot agree that sec. 1016(b) requires an
adjustment for bad debt deductions that could have been taken,
but were not. None of the specified adjustments in sec. 1016(a)
refers to sec. 166 bad debt deductions. In any event, because we
decide that the receivables were worthless when they were
contributed to SMP, a contribution of those worthless receivables
(continued...)
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