-20-
adjusted basis in any indebtedness that the corporation owes to the
shareholder. Sec. 1366(d).
Ms. Ng deducted losses from Hong Kong Restaurant, Inc., on her
individual tax returns as follows:
Year Deduction
1986 $173,228
1987 149,993
1988 284,778
1989 129,328
Ms. Ng established that she purchased 3,675 shares of stock in
Hong Kong Restaurant, Inc., a State of Washington corporation, for
$36,750 when that company was incorporated in 1983. Sixteen other
investors also purchased stock at that time, and the company's
initial capitalization was $500,000. Ms. Ng contends that she
later purchased all of the stock owned by the other investors and
invested at least $700,000 in the company. There is no credible
evidence to support her claim. Minutes of an August 3, 1984, board
of directors' meeting show Ms. Ng as the sole shareholder, but
there is no evidence as to how she acquired the additional shares
or how much she might have paid for them.
Ms. Ng claims that a lack of evidence as to how the stock was
acquired "is not important for purposes of determining her initial
basis * * * for Federal income tax purposes." Ms. Ng also contends
that preparation of tax returns by a reputable accounting firm
"supports an inference that the capital stock and loans from
shareholders reflected on the balance sheets would have been
reviewed and are correct." We disagree. See Sperl v.
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