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corporations. The burden is on petitioner to prove his basis in
the corporations at the time of the distributions.15
On the GAPS Schedule L, $1,000 is shown as petitioner’s
original capital contribution. Respondent has conceded this
amount, so petitioner's basis in GAPS is at least $1,000.
Petitioner claims that he lent the proceeds of two bank accounts,
totaling $154,000, to GAPS. While we have found that these
amounts were not loans, we do believe that petitioner transferred
these accounts to GAPS. However, petitioner has failed to prove
that he had a sufficient interest in the funds in these accounts
to give him any basis in the accounts, or in his GAPS stock after
15Petitioners, in their reply brief, argued that respondent
has the burden of proof on the issue of petitioner's basis
because this is a new issue raised by respondent. However, we
disagree with petitioners' contention that this is a new issue.
Respondent, in her statutory notice, determined that this case
dealt with GAPS's and JJM's constructive dividends. The
statutory notice did not address petitioner's basis in the
corporations because respondent assumed that earnings and profits
were sufficient to cover the amount of distributions. After
concessions, it became clear that this was not the case. This
change in the factual framework does not render the issue of
petitioner's basis a new issue. The issue of corporate
distributions, which is the broad issue in this case, encompasses
the need to determine petitioner's basis in the corporation.
Sec. 301, the controlling Code section, requires knowledge of a
taxpayer's basis in the corporation in order to determine the
taxpayer's return of capital and capital gain. Once the issue of
corporate distributions was raised in the statutory notice, the
burden was on petitioners to prove all the facts relevant to that
inquiry. This not only included the burden of proving loans,
which petitioners spent most of their efforts on, but it also
included the burden of proving the amounts of the corporate
distributions, the corporations' earnings and profits, and
petitioner's basis in the corporations.
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