Carl E. Jones and Elaine Y. Jones - Page 24

            accordance with this holding, will be necessary to determine the                          
            net amounts of the distributions.                                                         
                  Finally, in 1991 Development went out of business.  We have                         
            decided that petitioner's withdrawals were disguised                                      
            distributions, not loans, and that petitioner's payments in                               
            excess of withdrawals, if any, actually were contributions to                             
            capital.  Therefore, at the time of the corporate dissolution in                          
            1991, the ending balance in the loan account was the same as the                          
            beginning balance in 1989, $427,368, plus accrued interest on                             
            this amount.  Accordingly, we find that upon dissolution                                  
            petitioner received a distribution in the amount of that                                  
            indebtedness.  See sec. 1.301-1(m), Income Tax Regs.                                      
                  Assumption of Development's Indebtedness to INI                                     
                  Respondent determined that petitioner did not assume                                
            Development's indebtedness to INI in 1990.  Petitioner asserts                            
            that he validly assumed Development's indebtedness to INI in                              
            1990, such that Development owed petitioner $417,978, and                                 
            petitioner owed INI the same amount.17                                                    
                  Morrisett testified that Ricks and he made journal entries                          
            transferring Development's indebtedness to petitioner because                             

            17  In determining petitioners' deficiencies for 1989, 1990, and                          
            1991, respondent disallowed all of the debt transfers and                                 
            assumptions, whether transferred between corporations or between                          
            petitioner and a corporation.  Petitioner asserts that all of the                         
            transfers and assumptions are valid.  Our analysis and conclusion                         
            regarding the transfer of the $417,978 is equally applicable to                           
            the other debt transfers and assumptions disallowed by                                    

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