John Franklin Foust - Page 12

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          owed rent to either Mesa or Teton.  Respondent has drawn our                
          attention to evidence in the record that tends to suggest that              
          Cheyenne had a sharecrop arrangement with Mesa under which a cash           
          payment of rent would not ordinarily be due.  Because we find               
          that petitioner has failed to substantiate that either he or                
          Cheyenne was obligated to make the payments,6 or that Mesa or               
          Teton actually received them, we uphold respondent’s                        
          determination that petitioner is not entitled to a deduction of             
          $110,000 for payment of rents owed to Mesa and Teton.                       
          Issue 2:  Petitioner’s Unreported Income                                    
               Cheyenne, an S corporation whose shares were owned by                  
          petitioner, conducted farming activities through 1988.  ASCS owed           
          Cheyenne a disaster payment of $37,723.  In 1989, this amount was           
          distributed by ASCS to creditors of Cheyenne, CCC and SBA, in the           
          amounts of $34,171 and $3,552, respectively.  Cheyenne was also             
          entitled to a Federal crop insurance payment in the amount of               
          $43,496.  In 1989, this amount was distributed by the payor to AG           
          Services, a creditor of Cheyenne that had furnished goods and               
          services to Cheyenne for use in its farming activities.                     

               6 In the absence of a personal obligation of petitioner, the           
          payments by petitioner would be treated as capital contributions            
          to Cheyenne, and constructive payments by Cheyenne to the payees.           
          Because Cheyenne was an S corporation whose shares appear to have           
          been owned by petitioner during 1989, any loss arising from                 
          deductible payments constructively made by Cheyenne would                   
          properly flow through to petitioner for Federal income tax                  

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