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issue were made with respect to its stock and were not loans.
We note, however, that the $128,429 that respondent
determined was a dividend received by petitioner in 1989 was not
a distribution made by INI. This amount was distributed to
petitioner by Spalding, and it was recorded as a loan in an asset
account that was transferred by Spalding to INI as part of the
division of assets in the splitup of the two corporations.
Respondent did not contend that petitioner did not receive
the funds from Spalding as a loan; rather, respondent taxed
petitioner on the $128,429 as a constructive dividend from INI in
1989 "because he received the benefit of it" when the corporate
division was completed in that year. We do not think that the
splitup of INI and Spalding pursuant to section 355 by itself is
an event that requires petitioner to recognize a loan he received
from Spalding as dividend income from INI. Therefore, we find
for petitioner on this adjustment.
Discharge of Indebtedness
Respondent determined that in 1991 petitioner received
$21,767 from INI as income from the discharge of indebtedness.
At trial respondent contended in the alternative that if we
decided that the earlier distributions from petitioner's
corporations were in fact loans, then petitioner had $981,202 of
income from the discharge of indebtedness when INI went out of
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