Brief Fact Summary. Respondent was a part of a general partnership formed to build a 120 unit apartment complex. A non-recourse loan was received in order to build the complex. However, the partnership was not able to cover the payment of the mortgage and had to sell of the building.
Synopsis of Rule of Law. The gain or loss from a sale or other disposition of property is defined as the difference between the amount realized on the disposition and the property’s adjusted basis.
Because of this obligation, the loan proceeds do not qualify as income to the taxpayer.View Full Point of Law
Issue. Is the amount of the non-recourse mortgage considered gain when it exceeds the fair market value of the property?
Held. Justice Blackmun issued the opinion for the Supreme Court of the United States in reversing the Court of Appeals and holding that Respondent must account for the proceeds of obligations that he has received tax-free and included in the basis.
Concurrence. Justice O’Connor issued a concurring opinion concurring with the result but arguing that first the ownership and sale of the property should be considered and then separately considered the arrangement and retirement of the loan.
Discussion. The Supreme Court found that when a taxpayer sell or disposes of property then he is required to include the outstanding amount of the obligation as an asset realized. It is not relevant that this was a non-recourse loan or that the loan was in excess of the fair market value of the property at the time.