Big Hong Ng - Page 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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