Peracchi V. Commissioner United States Court of Appeals, Ninth Circuit, 1998. - PowerPoint PPT Presentation

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Peracchi V. Commissioner United States Court of Appeals, Ninth Circuit, 1998.

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Contributing property with liabilities in excess of ... Peracchi executed a promissory note, promising to pay NAC $1,060,000 over 10 yrs. Citation ... – PowerPoint PPT presentation

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Title: Peracchi V. Commissioner United States Court of Appeals, Ninth Circuit, 1998.


1
Peracchi V. CommissionerUnited States Court of
Appeals, Ninth Circuit, 1998.
  • Xiaohui Ge

2
Ruling
  • Section 357 (c)
  • Contributing property with liabilities in excess
    of
  • basis can trigger immediate recognition of gain
  • in the amount of the excess.
  • Avoid taxation?

3
Citation
  • Facts
  • Peracchi contributes two parcels of real estate
    to his
  • own closely-held corporation (NAC)
  • The parcels with liabilities exceeded his total
    basis of
  • property
  • Peracchi executed a promissory note,
  • promising to pay NAC 1,060,000 over 10 yrs

4
Citation
  • Result
  • Since the note has a basis equal to its face
    amount,
  • Peracchis total basis in the property is greater
    than
  • total liabilities.

5
Issue
  • IRS the note has zero basis.
  • Reason
  • The corporation will not collect on the note
    unless
  • Peracchi says so
  • holds an unenforceable promise
  • pay himself money

6
Issue
  • Peracchis contention
  • Bankruptcy
  • Creditors can get money form Peracchi by
    enforcing the
  • note as an unliquidated asset of the corporation
  • Sale of note for FMV
  • IF the basis of note is zero, NAC would recognize
  • 1,060,000 gain even though the note did not
  • appreciate

7
Conclusion
  • Since the risk of bankruptcy is important
  • enough to be recognized, Peracchi should get
  • the basis of note.
  • no gain recognizable
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