Tax Shelters Flashcards
What is the Estate of Franklin case?
Petitioners argued that they were entitled to their share of interest and depreciation deductions for property acquired by their partnership. Respondent argued that the deductions should not be allowed because the transaction in question was not a sale and that, at best, it constituted an option to buy. The court found that petitioners did not show that their purchase price was approximately equivalent to the property’s fair market value and also found it irrelevant that petitioners in good faith believed the values were equivalent. The court found that the purchase price was so much greater than the fair market value that the debt had no significance unless the property appreciated in value before the final payment was due. The court noted that the mere chance of a genuine debt obligation was not enough to justify interest and depreciation deductions.
