MTS International, Inc. - Page 2

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                                     MTS International, Inc.                                           
                         Additions to Tax                                                              
            Year   Deficiency  Sec. 6651(a)  Sec. 6653(a)(1)(A)1  Sec. 6661                            
            1987    $217,716        $54,429           $10,885                 $54,429                  

                  1 Respondent determined an addition to tax under sec.                                
            6653(a)(1)(B) of 50 percent of the interest due on $217,716 for                            
            1987.                                                                                      

                                          Robert C. Hughes III                                         
                                    Additions to Tax                                                   
            Year   Deficiency   Sec. 6651(a)(1)   Sec. 6653(a)(1)(A)1  Sec. 6661                       
            1986     $31,740        $13,179                 $3,236                  $7,935             
            1987     202,446        49,951                  11,190                  50,612             

                  1 Respondent determined additions to tax under sec.                                  
            6653(a)(1)(B) of 50 percent of the interest due on $31,740 for                             
            1986, and 50 percent of the interest due on $202,446 for 1987.                             

                  After concessions, the issues for decision are:                                      
                  1.  Whether the loss petitioner Robert C. Hughes III                                 
            sustained when he sold ZZZZ Best Co. stock in 1987 is deductible                           
            as a theft loss.  We hold that it is not.                                                  
                  2.  Whether petitioner Robert C. Hughes III’s withdrawals                            
            from petitioner MTS International, Inc. (MTS), and what                                    
            petitioners contend was its forgiveness of his debts were                                  
            constructive dividend income to him in the amount of $194,224 in                           
            1987.  We hold that they were, except as discussed below.                                  









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