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Prizant v. Commissioner of Internal Revenue

United States Tax Court

30 T.C.M. (CCH) 817 (1971)

Facts

In May 1958, H.G. Prizant and Company (the corporation) was formed and received significant assets and business activity from H.G. Prizant and Co. (the partnership). In January 1963, the corporation increased its capital structure, which included offering 420 shares of stock to the partnership for the cancellation of $42,000 of debts. At that time, the partnership was not conducting any business but did exist. On June 30, 1964, the partnership transferred the shares of the corporation. to Jerome Prizant and two other partners. More than a year later, the corporation became insolvent and the shares became valueless. On their 1965 joint tax return, Jerome and Doris Prizant (plaintiffs) claimed an ordinary loss deduction in the amount of $10,500 based on the worthlessness of the corporation’s stock. The Commissioner of Internal Revenue (the commissioner) (defendant) disallowed the deduction, as the Prizants were not the initial owners of the stock. The Prizants argued that the partnership had already been terminated when the stock was issued to it and that they were the initial recipients of the shares. The Prizants appealed to United States Tax Court.

Rule of Law

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Holding and Reasoning (Simpson, J.)

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