Helmer v. Commissioner
United States Tax Court
34 T.C.M. 727, T.C. Memo. 1975-160 (1975)
- Written by Matthew Celestin, JD
Facts
T. L. and George Hemler (plaintiffs) were equal partners in a cattle business. The partnership entered an agreement in which a third party would have the option to purchase property owned by the partnership in exchange for funds, which would be applied to the purchase if the third party exercised its option. Under the option agreement, the Hemlers’ partnership was under no obligation to repay the funds or perform any service. The third party transferred the funds to the Hemlers but did not exercise its option to buy the property. Although the payments received by the Hemlers exceeded their original bases in the partnership, the Hemlers argued that the transaction generated no gain because receipt of the funds created a partnership liability that increased the Hemlers’ bases in their partnership interests. However, the Commissioner of Internal Revenue (the Commissioner) (defendant) argued that the funds created no liability that increased the Hemlers’ bases and therefore that the Hemlers should recognize a gain in the amount that the funds exceeded their original bases.
Rule of Law
Issue
Holding and Reasoning (Wiles, J.)
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