- 18 -
which an estimate may be made. Vanicek v. Commissioner, 85 T.C.
731, 743 (1985). Without such a basis, any allowance would
amount to unguided largesse. Williams v. United States, 245 F.2d
559, 560 (5th Cir. 1957). Since petitioner has not demonstrated
a business purpose for these expenses, the claimed expenses are
disallowed.
Issue 5. The Capital Loss Deduction
SDG was incorporated on June 1, 1981. On the date of its
incorporation, 33 shares of stock were issued to petitioner at a
cost of $1 per share. On November 30, 1981, petitioner
transferred his automobile, valued at $2,600, to the corporation
in exchange for 10 additional shares of stock.
Shortly after its incorporation, petitioner realized that
SDG needed additional short-term capital for its operating
expenses. Petitioner approached an acquaintance, William J.
Vaughn (Mr. Vaughn), with the prospect of investing in SDG.
Mr. Vaughn expressed some concern regarding the safety of his
investment. Accordingly, petitioner orally agreed to guarantee
Mr. Vaughn's investment against a loss upon the liquidation of
SDG. The agreement was never reduced to writing, nor did the
parties discuss the method or schedule of payments under the
guaranty. In the fall of 1981, Mr. Vaughn invested $15,000 in
SDG in exchange for 60 shares of stock.
When SDG was liquidated in November 1983, the outstanding
loan balance due to petitioner from SDG totaled $8,650. At the
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011