- 17 -
residence, bank account, automobile, and personal property), and
liabilities of $310,000 (consisting of a mortgage on petitioner's
residence, an automobile loan, and other accounts payable).
Petitioner listed the Miller/Huntington Loan as a contingent
liability, thereby excluding it as a liability for purposes of
calculating his net worth.11 Excluding the Miller/Huntington Loan,
petitioner's net worth as of December 29, 1994, was listed as
$273,000 ($583,000 in assets minus $310,000 in liabilities).
Petitioner did not list his MMS stock as an asset on the financial
statement because MMS had ceased operations and was insolvent.12
Petitioners' Return Positions
Reflecting the outstanding balances on the Miller/Huntington
Loan and the MMS/Miller Loan at the end of 1992, 1993, and 1994 of
$750,000, $1,184,930, and $1,375,000, respectively, petitioners
claimed basis in indebtedness from MMS of $750,000 as of December
31, 1992, as well as annual increases of $434,930 as of December
31, 1993, and $190,000 as of December 31, 1994. Petitioners
consequently deducted ordinary corporate losses from MMS in the
amount of $750,000 for 1992, $431,691 for 1993, and $189,845 for
11 Although petitioner listed the outstanding balance for
the Miller/Huntington Loan as $1,500,000 on the financial
statement, it is undisputed that the balance was $1,375,000.
12 A Jan. 17, 1995, report by MMS to its creditors disclosed
that, as of yearend 1994, MMS's secured debt substantially
exceeded its assets, and that the company had an additional
$1,800,000 of unsecured debt.
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