Carl E. Jones and Elaine Y. Jones - Page 16

                                                -16-                                                  
            distributions taxable as provided under section 1368, as                                  
            respondent contends.10                                                                    
                  The burden of proof is on petitioners to show that the                              
            amounts at issue were bona fide loans and not taxable                                     
            distributions.  Rule 142(a); Welch v. Helvering, 290 U.S. 111                             
            (1933).  We also note that we have always examined transactions                           
            between closely held corporations and their shareholders with                             
            special scrutiny.  Electric & Neon, Inc. v. Commissioner, 56 T.C.                         
            1324, 1339 (1971), affd. without published opinion sub nom.                               
            Jiminez v. Commissioner, 496 F.2d 876 (5th Cir. 1974).                                    
                  A transfer of money is a loan for Federal income tax                                
            purposes if, at the time the funds were transferred, the                                  
            transferee unconditionally intended to repay the money, and the                           
            transferor unconditionally intended to secure repayment.  Haag v.                         
            Commissioner, 88 T.C. 604, 615-616 (1987), affd. without                                  


            10                                                                                        
                  Sec. 1368 provides in the case of an S corporation which has                        
            accumulated earnings and profits that the portion of any                                  
            distribution of property which is made with respect to its stock                          
            and which does not exceed the AAA shall not be included in gross                          
            income to the extent that it does not exceed the basis of the                             
            stock.  Sec. 1368 (a), (b)(1), (c)(1).  If the amount of the                              
            distribution exceeds the basis of the stock, it shall be treated                          
            as gain from the sale or exchange of property.  Sec. 1368(b)(2).                          
            The portion of the distribution that remains after depletion of                           
            the AAA shall be treated as a dividend to the extent it does not                          
            exceed the accumulated earnings and profits of the S corporation.                         
            Sec. 1368(c)(2).  The portion of the distribution that remains                            
            after depletion of the AAA and depletion of the accumulated                               
            earnings and profits shall not be included in gross income to the                         
            extent that it does not exceed the remaining adjusted basis of                            
            stock.  If the amount of the distribution exceeds the basis of                            
            the stock, such excess shall be treated as gain from the sale or                          
            exchange of property.  Sec. 1368(c)(3), (b).                                              



Page:  Previous  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  Next

Last modified: May 25, 2011