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Lessinger v. Commissioner

Lessinger v. Commissioner. 872 F. 2d 619 (C.A.-2, 1989) Reversed: 85 T.C. 824 (1985). Yanina McMann Tax 8030. Background. Sal Lessinger; sole proprietor of “Universal Screw and Bolt Co.” Incorporated under New York law by his attorney

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Lessinger v. Commissioner

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  1. Lessinger v. Commissioner 872 F. 2d 619 (C.A.-2, 1989) Reversed: 85 T.C. 824 (1985) Yanina McMann Tax 8030

  2. Background • Sal Lessinger; sole proprietor of “Universal Screw and Bolt Co.” • Incorporated under New York law by his attorney • Entity had negative net worth at the transfer (liabilities > assets) • “Loan receiveable- SL” entry on books for $255,499

  3. Q1 & Analysis 1 • Q1: When assets are transferred but no new stock is issued, does the transfer still qualify as Sec. 351? • Yes. If it’s a sole shareholder and the transfer is into a wholly-owned operation.

  4. Q2 and Analysis 2 • Was the created debt real and countable toward the non-recognition when there is negative net worth (Sec 357(c))? • Commissioner: no due date, interest rate • Taxpayer: later signed a prom. note; Midland Marine used is as collateral; • Yes, the debt is real

  5. Q3 and Analysis 3 • What is the adjusted basis of the transferred property to the corporation? • No gain recognized under Sec. 351 unless falls under Sec. 357(c) • Normally, basis = asset • In this case: basis to corp. is face amount in hands of taxpayer

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