Harry D. Bledsoe and Annie L. Bledsoe - Page 15

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            limitation, petitioners deducted $100,000 in 1988 and the $96,503                           
            remainder as an ordinary loss carryover for 1989.4  Respondent                              
            determined that petitioners' ordinary section 1244 loss deduction                           
            was limited to $7,500, which respondent contends was the amount                             
            that petitioners paid for the stock when it was issued.                                     
                  If a shareholder owns section 1244 stock and makes                                    
            additional capital contributions and receives no additional                                 
            shares of stock, then the basis in the stock increases.  However,                           
            such an increase in basis "shall be treated as allocable to stock                           
            which is not section 1244 stock."  Sec. 1244(d)(1)(B).  Any                                 
            additional contributions to capital for which one receives no                               
            additional stock are not eligible for section 1244 ordinary loss                            
            treatment.  Id.                                                                             
                  The parties here agree that the stock at issue is "section                            
            1244 stock" as defined in section 1244(c).  We must decide                                  
            whether petitioner's payments subsequent to the initial $7,500                              
            were for the issuance of additional section 1244 stock or were                              
            capital contributions to be treated as "allocable to stock which                            
            is not section 1244 stock."  Id.                                                            

            4 At trial, petitioners acknowledged that, should they                                      
            prevail on this issue, their sec. 1244 ordinary loss deduction                              
            should have been limited to $100,000 in 1988 with the balance as                            
            a capital loss carryover.  See secs. 1212, 1244(b).                                         

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