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the Tax Court Rules of Practice and Procedure, except as
otherwise noted.
Petitioners, John Edward and Linda Hall, were residents of
Kansas at the time the petition was filed herein. Hereinafter,
all references to "petitioner" refer to John Edward Hall.
In the year 1986, a corporation known as Hall/McCollum
Laboratories, Inc., was formed in the State of Nevada. One
million shares of this corporation were issued to petitioner. In
1987, petitioner sold back to the corporation 800,000 of these
shares, for which he received $150,000.
Thereafter, a dispute arose between petitioner and the
corporation and, after the corporation had changed its name to
HML Medical, Inc., petitioner brought suit against it. In 1990,
the dispute was settled, and the lawsuit was dismissed. As part
of the settlement, petitioner surrendered his remaining 200,000
shares of the corporation to it, in return for the payment to him
of $212,500.
Upon audit, respondent determined that petitioner's
remaining cost basis in his stock in the corporation was only
$8,801, as compared to a basis of $212,500, which petitioner had
claimed in his return. Respondent also disallowed a claimed net
capital loss carryforward of $3,000 contained in petitioner's
return. Finally, respondent, having initially allowed a net
operating loss carryback to petitioner from 1991 to 1990 in the
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