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distribution from Corona to SMP. As a result of Imperial’s
purchase of SMP’s membership interest in Corona, Corona’s capital
accounts and percentage interests were restated as follows:
Capital Account Percentage Interest
Imperial $1,240,000 79.20%
SMP 310,000 19.80
Mr. Lerner 5,000 0.33
Peridon Corp. 10,000 0.67
Total $1,565,000 100.00
On its November 5 to December 15, 1997, partnership tax
return, Corona reported Imperial’s initial purchase of SMP’s
interest as a $64,130,364 capital reduction by SMP and a
$64,130,364 capital contribution by Imperial. Corona reported
these amounts at tax values, not accounting book values. On its
tax return for the taxable year ended December 31, 1997, SMP
reported the sale of its interest in Corona to Imperial as
follows:
$1,252,000 Sales price
63,489,061 Basis
(62,237,061) Long-term capital loss
The $62,237,061 loss that SMP reported flowed through to
Somerville S Trust and then through to Mr. Ackerman, who claimed
it on his tax return.
4. Additional Purchase of SMP’s Interest in Corona
On December 23, 1997, Imperial purchased from SMP an
additional 14.65-percent interest in Corona pursuant to an
amendment to purchase agreement. With this purchase, Imperial
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