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indebtedness; $417,978 that Development owed to INI; and $61,057
that it owed to Towergate.
Respondent also disallowed a $54,369 credit recorded for
petitioner's payment of Development's indebtedness that
petitioner did not substantiate8 and disallowed credits totaling
$115,725 that were for petitioner's unverified deposits in the
corporate account.
Respondent determined that Development distributed $527,318
to petitioner, and that he paid a total of $301,900 into the
corporation. Respondent applied the amounts paid to the
corporation first to the beginning loan balance, which according
to respondent's calculations was $36,173, and the remainder as an
offset to the current year withdrawals, for a net distribution of
$261,591.
Respondent determined that the distributions made to
petitioner in 1989 had exhausted Development's accumulated
earnings and profits and also consumed petitioner's stock basis.
Thus, respondent adjusted petitioners' 1990 income for capital
gains in the amount of the net distribution made by Development
in 1990, $261,591. Petitioner asserts, inter alia, that he
assumed Development's indebtedness as represented in the loan
account summary.
8
At trial, petitioner introduced a copy of a check signed by
Mrs. Jones made to Cobb Commercial Bank for $54,369. Respondent
concedes on brief that the amount of the check will be allowed as
a credit for 1990. See supra note 1.
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