sh 1

1
Eisner v. Macomber
SO stock value 500,000
sh 1 50
SO stock value 500,000
sh 2 50
initial contribution 5,000 cash
initial contribution 5,000 cash
Standard Oil Corporation paid-in capital
10,000 net worth 1,000,000
2

BALANCE SHEET ASSETS
LIABILITIES cash and equipment
no third party liabilities
1,000,000 Capital Accounts
paid-in capital 10,000

surplus 990,000 total
1,000,000 total 1,000,000



3
Cash Dividend Distribution total 10,000
SO stock value 495,000
sh 1 50
sh 2 50
SO stock value 495,000
5,000 cash
5,000 cash
initial contribution 5,000 cash
initial contribution 5,000 cash
total cash dividend 10,000
Standard Oil Corporation paid-in capital
10,000 net worth 990,000
4
Cash Dividend Distribution total 10,000

BALANCE SHEET ASSETS
LIABILITIES cash and equipment
no third party
liabilities 1,000,000 less
10,000 Capital
Accounts paid-in capital 10,000

surplus
980,000
total 990,000 total
990,000



990,000 less 10,000 distribution
5
IBM Stock Dividend Distribution total 10,000
sh 1 100 shares 50
SO stock value 495,000
sh 2 100 shares 50
SO stock value 495,000
IBM stock fmv 5,000
IBM stock fmv 5,000
initial contribution 5,000 cash
initial contribution 5,000 cash
distribution of IBM stock fmv 10,000
Standard Oil Corporation paid in capital
10,000 net worth 990,000
6
IBM Stock Dividend Distribution total
10,000

BALANCE SHEET ASSETS
LIABILITIES cash and equipment
no third party
liabilities 1,000,000
less 10,000
Capital Accounts paid-in
capital 10,000

surplus 980,000
total 990,000
total 990,000



(including IBM shares fmv 10,000)
990,000 less 10,000 distribution
7
1 for 1 Standard Oil Stock Dividend
total 10,000
SO stock value 500,000
sh 1 100 shares 200 shares 50
sh 2 100 shares 200 shares 50
SO stock value 500,000
100 SO shares fmv 5,000
100 SO shares fmv 5,000
initial contribution 5,000 cash
initial contribution 5,000 cash
distribution of 200 SO shares fmv 10,000
Standard Oil Corporation paid in capital
10,000 net worth 1,000,000
8
1 for 1 Standard Oil Stock Dividend
total 10,000

BALANCE SHEET ASSETS
LIABILITIES cash and equipment
no third party liabilities
1,000,000 Capital Accounts
paid-in capital 20,000

surplus 980,000 total 1,000,000
total 1,000,000



moved 10,000 from surplus to paid-in capital
9
Helvering v. Bruun
basis 10,000 fmv 60,000
50-year useful life
year 1 year 2
year 3
year 99
lease contract improvement
forfeiture
(building replaced)
building reverts to landlord
99 year lease
10
Improvement (50,000 fmv) reverts to landlord
with 10-year remaining useful life
10 years useful life remaining
year 3 lease term
year 1
year 2
year 3
lease contract improvement added
termination

building reverts to landlord with 10-year
remaining useful life fmv on forfeiture 50,000
3 year lease
11
10-year lease to new tenant 7,000/year
rent Bruun approach
yr. 1 fmv building 50,000
yr.1 yr 2 yr. 3
yr. 4 yr. 5
yr. 6 yr.7 yr.8
yr.9 yr.10
years 1 - 10 rental income
70,000 (7,000 x
10 yrs. rental income) - 50,000 (5,000
x 10 yrs. depreciation) 20,000
(2,000 x 10 years net rental income)
7,000 (rental income per year) - 5,000
(depreciation per year) 2,000 net rental
income per year
20,000 net rental income over 10 years
straight-line depreciation of 50,000 over 10
years 5,000/year
tax on 50,000 in yr. 1 per Bruun
buildings basis 50,000 (assuming yr. 1 tax)
12
10-year lease to new tenant 7,000/year
rent 109 and 1019
approach
yr. 1 fmv building 50,000
yr.1 yr 2 yr. 3
yr. 4 yr. 5
yr. 6 yr.7 yr.8
yr.9 yr.10
years 1 10 rental income
70,000 (7,000 x 10 yrs.
rental income) no
depreciation 70,000 net rental income over
10 years
NO tax on 50,000 in yr. 1 per 109
buildings basis 0 per 1019 (assuming no
tax)
no basis to depreciate
13
Bruun and 109/1019 Approaches
Compared
Bruun
109/1019 yr. 1 income from building
50,000 (improvement)
0 yrs. 1 10 net rental income
20,000 (2000 x 10 yrs.) 70,000
(7,000 x 10 yrs.) 10 yr. total income
70,000 70,000 7,000 rental income
less 5,000 depreciation 2,000 net rental
income per year