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Background
Petitioners are husband and wife, and they resided in Los
Angeles, California, when their petition was filed. JCB Stone
Canyon Investments, LLC (JCB), a single member limited liability
company, and Stone Canyon Investors, Inc. (Investors), an S
corporation wholly owned by John and Judith Bedrosian as
community property, purported to form a partnership, Stone Canyon
Partners (Stone Canyon).
In November 1999, JCB purported to purchase and sell options
on foreign currency. JCB then purported to contribute the
purchased options, the sold options, and Texas Instruments stock
to Stone Canyon, on behalf of itself and on behalf of Investors.
In calculating the basis in the interests of JCB and Investors,
the Bedrosians did not treat the options purportedly sold by JCB
as a liability subject to the provisions of section 752.3
In December 1999, JCB purported to transfer its interest in
Stone Canyon to Investors. Investors acquired the Texas
Instruments stock previously contributed by JCB. Investors
claimed a basis in the Texas Instruments stock based on the basis
of the stock “in the hands” of Stone Canyon.
Petitioners reported an ordinary loss of $175,000 for 1999
related to their interest in Stone Canyon. Additionally,
3 Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue.
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Last modified: March 27, 2008