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Citron v. Commissioner

97 T.C. 200 (1991)

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Citron v. Commissioner

United States Tax Court

97 T.C. 200 (1991)

Facts

B. Philip Citron (plaintiff) was one of four limited partners of Vandom Productions (Vandom), which was a limited partnership with one general partner. Citron made a capital contribution of $60,000 to Vandom, but Vandom did not assume any liabilities. Vandom filmed and attempted to produce a movie but was ultimately unsuccessful because an executive producer of the movie refused to turn over the physical copy of the film. Vandom’s general partner wanted to salvage the project and pursue a lawsuit against the executive producer, but Citron did not want any further involvement. Citron communicated his position to the general partner and the other limited partners, and the limited partners voted to dissolve Vandom. Thereafter, the general partner had Vandom’s final tax return prepared. Citron never received any money back on his capital contribution, and Vandom did not assume any liabilities from Citron; therefore, Citron claimed the full $60,000 as an ordinary loss on his tax return. However, the Commissioner of Internal Revenue (the Commissioner) (defendant) disallowed the entire loss, arguing that Citron had not taken an affirmative act of abandonment of his partnership interest as required by § 165 of the Internal Revenue Code. The Commissioner further argued that the abandonment was a sale or exchange of a capital asset and therefore that the loss was a capital loss rather than an ordinary loss.

Rule of Law

Issue

Holding and Reasoning (Gerber, J.)

Dissent

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