Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 69-77

1969-1 C.B. 59

Sec. 167

IRS Headnote

Acquiescence in the decision in Manuel D. Mayerson, relating to the depreciable basis of property acquired in exchange for a long-term interest bearing, purchase-money mortgage and mortgage note, will not necessarily be relied on in other cases.

Full Text

Rev. Rul. 69-77

The decision of the Tax Court of the United States in Manuel D. Mayerson v. Commissioner, 47 T.C. 340 (1966), acquiescence, page 21, this Bulletin, involved an acquisition of depreciable property in exchange for a long-term (99 years) interest bearing, purchase-money mortgage and mortgage note. The purchasers were not personally liable for the mortgage debt, nearly all of which was due at the end of the mortgage term. The court held that the purchasers were entitled to include in the depreciable basis of the property the debt obligation allocated to the building created by the purchase-money mortgage. The court found that a bona fide sale had been consummated at arm's length between knowledgeable strangers, for valid business purposes, and that a bona fide debt obligation for most of the purchase price had been created. It is to be noted that the fair market value of the property was not put in issue in the case.

The Service emphasizes that its acquiescence in Mayerson is based on the particular facts in the case and will not be relied upon in the disposition of other cases except in situations where it is clear that the property has been acquired at its fair market value in an arm's length transaction creating a bona fide purchase and a bona fide debt obligation. The Service will continue to review transactions involving purported purchases of depreciable property where, in the light of all the facts and circumstances, it appears that the transactions were designed to improperly create or inflate depreciation deductions. In cases of this type, the Service will disallow unwarranted depreciation deductions.