Kaps Warehouse, Inc. - Page 18

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            assumption to be flawed--none of the related entities were in fact                        
            liquidated, and there is no evidence to suggest that a liquidation                        
            was contemplated.  Rather, the record indicates that each of the                          
            related entities was a going concern. Thus, in our opinion, Mr.                           
            Lamprecht's determination as to the financial position of the                             
            related entities does not correctly reflect the entities' ability                         
            to pay their accounts payable to petitioner.                                              
                  We believe the rebates were made solely to reduce taxes for                         
            the Kirkham family as a whole.  We are mindful that current tax law                       
            provides that in order for losses of an S corporation, such as                            
            Kapsco, to pass through to its shareholders, the shareholders must                        
            have sufficient bases in their stock and debt to absorb the loss.                         
            Sec. 1366(d)(1).  In the instant case, there is no evidence that                          
            Kapsco's shareholders had sufficient bases in 1991 to absorb                              
            Kapsco's losses before the rebates.                                                       
                  It would appear that it was financially advantageous for the                        
            losses that otherwise would have gone to the Kapsco shareholders                          
            (the Kirkham family) to instead be used to reduce petitioner's                            
                  Similarly, before the rebates, NPC showed losses of ($56,899)                       
            and ($113,993) in fiscal years 1991 and 1992, respectively. A                             
            review of NPC's original Federal income tax returns for those years                       
            indicates that these losses would have gone unused in the years at                        

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