-260-
million receivable on its contribution and had no basis in that
receivable when it was sold to TroMetro in 1997.180 Consequently,
we hold: (1) SMP is not entitled to a $147,486,000 capital loss
on its sale to TroMetro of the $150 million receivable in 1997;
(2) SMP is not entitled to capital losses of $11,647,367 and
$62,237,061 on its sales to Imperial of portions of its Corona
membership interest in 1997; (3) SMP is not entitled to a
$80,190,418 capital loss on its sale to TroMetro of the $81
million receivable in 1998; and (4) Corona is not entitled to a
capital loss on its sale to TroMetro of the $79 million
receivable in 1997.181
180 We also conclude that the step transaction doctrine
applies to recast the banks’ contributions of the SMHC
receivables and stock as direct sales of those properties from
the banks to Somerville S Trust, followed by Somerville S Trust’s
contributions of the SMHC receivables and stock to SMP in
exchange for preferred interests in SMP. Presumably, Somerville
S Trust would be entitled to a cost basis totaling $10 million in
the SMHC receivables and stock, which would carry over to SMP
under sec. 723. The parties have not addressed the manner in
which the $10 million basis amount would be divided among the
receivables and stock; because we decide on alternative grounds
that SMP received a zero basis in the SMHC receivables, we need
not decide this issue.
181 Corona claimed a $78,768,955 capital loss on this
transaction. We do not have jurisdiction over the $74,671,378
portion of the loss that Corona claimed on its 1997 return. See
supra note 7. As a practical matter, the effect of our holding
is to disallow the $4,097,577 portion of the claimed loss that
flowed through to SMP.
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