Philadelphia Park Amusement Co' v' U'S'

1

• Philadelphia Park Amusement Co. v. U.S.
• 
  
• taxable 1001
  exchange?
  
• Issue What is the taxpayers basis in the
  franchise?
• Relevance?

City of Philadephia
TP
title to bridge
extension of franchise
2
Possibilities for 1012 Cost Basis in the
Franchise 1. cost of the bridge
transferred 2. fmv of the bridge
transferred 3. fmv of franchise
received
3
Basis in Property Received in a Taxable
Exchange Tax Cost Basis Tax
Consequences 10,000 ordinary compensation
income to Larry - 61(a)(1) If Larry
later sells his stock for 10,000, what basis
should he use? Options 1. fmv services
given 10,000 2. fmv stock received
10,000
Larry
Client (ABC Corp.)
legal services fmv 10,000
ABC stock fmv 10,000
4
Tax Consequences on Later Sale of Stock for
10,000 AR 10,000 less AB
10,000
0
5

• Underpayment Example
• legal services
• fmv 11,000
• ABC stock
• fmv 10,000
• Tax Consequences
• 10,000 ordinary compensation income to Larry -
  61(a)(1)
• If Larry later sells his stock for
  10,000, what should his basis be?

Larry
Client (ABC Corp.)
6

• Compare Options
• Tax Consequences on Later Sale of Stock for
  10,000
• fmv given basis fmv received basis
• AR 10,000 AR
  10,000
• less AB 11,000 AB 10,000
• ( 1,000) 0
• loss
• With fmv given basis, taxpayer would wind up with
  a windfall
• 1,000 tax loss where there was no
  economic loss

7

• Overpayment Example
• legal services
• fmv 9,000
• ABC stock
• fmv 10,000
• Tax Consequences
• 10,000 ordinary compensation income to Larry -
  61(a)(1)
• If Larry later sells his stock for
  10,000, what should his basis be?

Client (ABC Corp.)
Larry
8

• Compare Options
• Tax Consequences on Later Sale of Stock for
  10,000
• fmv given basis fmv received basis
• AR 10,000 AR
  10,000
• less AB 9,000 AB 10,000
• 1,000 0
• gain
• With fmv given basis, taxpayer would wind up with
  a double tax on 1,000