Carl E. Jones and Elaine Y. Jones - Page 30

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                  9.  Reporting the Assumption for Federal Tax Purposes                               
                  INI reported the increased amount of the shareholder loan                           
            account on its returns for the years at issue.                                            
                  On the basis of our examination of the entire record, we                            
            find that petitioner has not established that he entered into a                           
            bona fide creditor-debtor relationship with INI at the time of                            
            the transactions at issue.  We therefore sustain respondent's                             
            determinations on this issue.                                                             
            Issue 2.  Whether Petitioner Had Sufficient Basis in                                      
            Development's Indebtedness to Him To Deduct Pass-Through Losses                           
            of $163,487 and $21,022 in 1990 and 1991                                                  
                  Development was indebted to the Carl E. Jones Trust No. 1                           
            (the Trust) for $153,847.  Petitioner "assumed" Development's                             
            indebtedness to the Trust by making a journal entry that                                  
            transferred the liability to him.  Petitioner "paid" the                                  
            indebtedness by making journal entries offsetting the annuity                             
            payments owed him by the Trust against the amount he owed the                             
            Trust.  Petitioners reported the annuity income on their joint                            
            tax returns for 1989, 1990, 1991, and 1993; however, petitioner                           
            did not issue any checks to the Trust or provide any credible                             
            evidence to verify that he actually made payments to the Trust.                           
                  Development was indebted to Carlsgate for $82,132.                                  
            Petitioner "assumed" this indebtedness by making a journal entry                          
            that transferred the liability to him.  Petitioner "paid" this                            








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