George Georgiou and Judith Georgiou A.K.A. Judy Georgiou, et al. - Page 18

                                                 - 18 -                                                    
                  Georgiou claimed a $100,000 home interest deduction on his                               
            1990 Form 1040 tax return for a portion of the advances that was                               
            allegedly used to remodel his private residence.                                               
                  Respondent determined that Georgiou's withdrawals from                                   
            Kolonaki's line of credit were constructive dividends and not                                  
            loans.  Respondent further determined that there was no allowable                              
            interest expense because the advances were not loans.                                          
                  The GRS 1989 Form 1120 tax return represented the value of                               
            inventory at the beginning of the year as $935,181.  The GRS                                   
            beginning inventory was transferred from Kolonaki to GRS pursuant                              
            to a section 351 exchange for GRS stock.  The Kolonaki books                                   
            reflected the transfer of opening inventory to GRS.  The basis of                              
            the transferred inventory as it appeared on the Kolonaki books                                 
            was $805,000.                                                                                  
                  Respondent reduced the value of opening inventory that GRS                               
            represented on its 1989 tax return from $935,181 to $805,000.                                  
            Respondent maintains that the proper value is the transferor's                                 
            basis in the property transferred.                                                             
                  Kolonaki, Georgiou, and GRS have the burden of proof on all                              
            issues.  Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79,                              
            84 (1992); Rockwell v. Commissioner, 512 F.2d 882 (9th Cir.                                    
            1975), affg. T.C. Memo. 1972-133.                                                              

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