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BEL. However, Mr. Garrett testified that he owned only 50
percent, not 100 percent, of the S corporation. Therefore,
petitioners contend that only 50 percent of the additional income
is taxable to them.
Section 1366 provides that a shareholder of an S corporation
shall take into account the shareholder's pro rata share of
income earned by the corporation as if such income were realized
directly from the source as realized or incurred by the
corporation. The burden is on petitioners to prove the
respondent's determinations are incorrect. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933).
The evidence in this case does not support petitioners'
argument that Mr. Garrett was only a 50-percent shareholder in
BEL. The corporate return of BEL treats Mr. Garrett as the sole
shareholder for the taxable year 1991. Only one Schedule K-1 is
attached to BEL's Form 1120S for 1991. This Schedule K-1 lists
Mr. Garrett as owning 100 percent of the stock of BEL for 1991.
Petitioners failed to produce evidence of any other BEL
shareholders to support Mr. Garrett's self-serving testimony.
Consequently, we find that Mr. Garrett was the sole shareholder
of BEL in 1991 and that petitioners understated their
distributive share of ordinary income from BEL by $34,895 for
1991.
Issue Four: Innocent Spouse Relief
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