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Owen v. Commissioner
United States Court of Appeals for the Ninth Circuit
881 F.2d 832 (1989)
William Owen (plaintiff) was an equal partner with Stephen McEachron in the general partnership of McO Investment (McO). Owen and McEachron took out a loan to purchase drilling equipment. The loan was secured by the equipment, to which McO held title, and was personally guaranteed by Owen and McEachron. The equipment was then leased to Western Exploration, Inc. (Western), a corporation Owen and McEachron owned equally. Owen and McEachron subsequently decided to exit the drilling business and transferred all of McO’s assets to Western, but the debt on the equipment exceeded the adjusted basis of the equipment. The Commissioner of Internal Revenue (the Commissioner) (defendant) assessed a capital-gains tax on Owen for the transfer of the equipment based on the discrepancy between the debt and the adjusted basis of the equipment. The tax court upheld the Commissioner’s determination to assess a capital-gains tax based on § 357(c) of the Internal Revenue Code, which generally requires a transferor in a § 351 exchange to recognize a gain if the liability assumed by the transferee corporation exceeds the basis of the property transferred. Owen appealed.
Rule of Law
Holding and Reasoning (Thompson, J.)
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