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had made to its shareholders. Spalding had lent petitioner a
total of $128,429 at the time of the splitup. As part of the
Agreement, Spalding transferred the loan account with the balance
owed by petitioner to INI. INI added the balance of the
transferred account to the receivables account it maintained on
its books for the loans that it had made to petitioner for the
fiscal year ending September 30, 1988.
After the separation, petitioner became the president and
sole shareholder of INI, and Cates became the sole shareholder of
Spalding.
Development
Development was primarily engaged in building single-family
homes. Development was incorporated as a C corporation in 1973,
elected to be an S corporation in 1986 and ceased doing business
in 1991. For the years at issue, Development had a taxable year
ending September 30. Development was owned entirely by
petitioner, who was also its president.
Carlsgate
Carlsgate was the marketing arm for the properties built by
Development. Carlsgate was incorporated in 1984, elected S
corporation status in 1987, and filed its final return in 1991.
Petitioner was the president of Carlsgate from its inception.
Towergate
Towergate was a project of approximately 70 townhouses built
in the mid-1980's that sold for prices ranging from $72,000 to
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