Third. They argue that the sales proceeds were not used by APECO
because other sources of funds were available to it. Petitioners
further contend that there was no intention to withdraw the sales
proceeds from APECO when the horses were contributed and the
distribution of the sales proceeds was precipitated by events
that were unforeseen at the time of the transfer.
Respondent's position is that, although the transaction was
cast as a sale of the horses by APECO, the substance of the
transaction was that Mr. Kluener sold the horses using APECO as a
conduit and that the gain realized on the sale therefore must be
charged to him. Respondent contends that Mr. Kluener had decided
to sell the horses for personal reasons prior to transferring
them to APECO and that the sole purpose for transferring the
horses to APECO was to use its NOL's to avoid tax on the gain
realized on the sale. Respondent maintains that Mr. Kluener kept
control of the horses and the sales proceeds while they were
nominally held by APECO, concealing from the other officers and
directors of APECO the fact that the transaction involving the
horses was conducted in the name of APECO, as well as the e
xistence of the accounts in which the sales proceeds were held.
Respondent notes that the sales proceeds were never used to fund
APECO's operations, which instead were financed by loans from Mr.
Kluener using funds from his bank accounts. Respondent also
points to the distribution to Mr. Kluener of all of the sales
proceeds and earnings held in the name of APECO several months
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