C-lec Plastics v. Commissioner
United States Tax Court
76 T.C. 601 (1981)
- Written by Heather Whittemore, JD
Facts
Edward D. Walsh was the president and sole shareholder of C-lec Plastics (C-lec) (plaintiff). Sometime before May 31, 1970, C-lec created plastic molds to be used by Physics International. C-lec deducted the cost of making the molds on its income-tax return. In 1972 C-lec abandoned the molds, and Walsh took possession of them. Walsh’s tax basis in the molds was zero. In 1973 C-lec owed almost $54,000 to Walsh. C-lec decided to retake possession of the molds. C-lec issued a credit to Walsh worth $37,000. C-lec gave Walsh 500 shares of stock worth $80 each, for a total value of $40,000. In addition, C-lec reduced its debt to Walsh by almost $3,000. In December 1973, the molds were destroyed in a fire. C-lec attempted to take a casualty-loss deduction on the molds, arguing that its basis in the molds was $37,000. C-lec argued that it issued a credit to Walsh for $40,000 for the molds and that this debt was unrelated to the stock issuance or debt reduction. The Commissioner determined that C-lec was not entitled to a casualty loss because its basis in the molds was zero. C-lec appealed.
Rule of Law
Issue
Holding and Reasoning (Drennen, J.)
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