Carl E. Jones and Elaine Y. Jones - Page 13

                                                -13-                                                  
                  Of the $307,976,7 respondent determined that $8,854 was a                           
            dividend paid from the C corporation accumulated earnings and                             
            profits, $500 was a nontaxable return of petitioner's stock                               
            basis, and the $298,622 balance was capital gain income.                                  
                  Respondent adjusted the balance of the loan account to                              
            reflect the determinations; that is, respondent recalculated the                          
            balance to reflect the repayments of the prior year's loans but                           
            did not increase the balance for the alleged loans made to                                
            petitioner during the current year nor reduce it for petitioner's                         
            alleged assumption of Development's debts.  The ending loan                               
            account balance calculated by respondent was $36,173; the balance                         
            on Development's records was $88,077.  Thus, the ending loan                              
            balance calculated by respondent was less than the balance on                             
            Development's books and records.  Finally, respondent adjusted                            
            Development's AAA to restore the correct balance, $76,000, as                             
            reported on Development's amended return.                                                 
                  1990                                                                                
                  Respondent allowed $527,318 of the debits (increases) that                          
            were recorded in the account during 1990 and disallowed $22,259.                          
            Respondent allowed $301,900 of the credits (decreases) that were                          
            recorded in the account and disallowed $681,706.                                          
                  Among the disallowed amounts were $479,035 of credits                               
            recorded for petitioner's alleged assumption of Development's                             


            7  This amount is the sum of petitioner's cash withdrawals and                            
            his indebtedness to Winterchase.                                                          




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