Colonnade Condominium v. Commissioner

91 T.C. 793 (1988)

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Colonnade Condominium v. Commissioner

United States Tax Court
91 T.C. 793 (1988)

Facts

Colonnade Condominium, Inc. (Colonnade) (plaintiff) was owned by three individuals. Colonnade held a 50.98 percent interest in Georgia King Associates (Georgia King). Colonnade had an obligation to make capital contributions of approximately $1.3 million, of which it had contributed less than $400,000. Colonnade had a negative capital account balance. Georgia King’s partnership agreement was amended to make each of Colonnade’s shareholders a 13.66 percent general partner and to reduce Colonnade’s interest to 10 percent. Colonnade’s shareholders assumed responsibility for the capital contributions owed by Colonnade. Colonnade treated the transaction as a nontaxable admission of new partners to an existing partnership. The commissioner of the Internal Revenue Service (defendant) treated the transaction as a sale of 40.98 percent of Colonnade’s partnership interest in exchange for the discharge of partnership liabilities and assessed taxes against Colonnade accordingly. Colonnade appealed the assessment to the United States Tax Court.

Rule of Law

Issue

Holding and Reasoning (Wright, J.)

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