Monday, April 29, 2013

Commissioner v. Tufts case brief

Commissioner v. Tufts case brief
461 U.S. 300,103 S. Ct.1826,75 L. Ed. 2d 863,1983 U.S. 27

CASE SYNOPSIS: Petitioner, Commissioner of the Internal Revenue Service, challenged the judgment of the U.S. Court of Appeals for the Fifth Circuit, which held that respondents, taxpayers in a partnership, did not have to include unpaid balance of a mortgage property when it was sold, when computing the amount the taxpayers realized on the sale.

FACTS: Respondents, taxpayers in a partnership, sold an apartment complex with an encumbered nonrecourse mortgage, with a value greater than the property's value. Respondent did not include the unpaid balance of the mortgage in computation of the amount the taxpayer realized on the sale. Petitioner, Commissioner of the Internal Revenue Service, performed an audit and determined that the sale resulted in a partnership capital gain, on the theory that the partnership had realized the full amount of the nonrecourse obligation, and assessed a deficiency. Respondents challenged petitioner's determination, arguing that under the internal revenue code, petitioner failed to properly take into account that the value of the mortgage exceeded the sale, and therefore there was no economic benefit to be realized from the sale.

The court upheld petitioner's assessment, holding that under previous precedent, petitioner's position was just and reasonable.

The court determined that it was irrelevant that there was no economic benefit, since under the code, the value of the mortgage was relieved, and thus was a taxable benefit to respondents.

CONCLUSION: The court reversed the decision of the lower court and upheld petitioner's assessment of a deficiency against respondents from the sale of their encumbered mortgaged property.

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