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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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