-34-
The record clearly reveals that Strong Hope's only business
activity was the rental of the Stockton Street property in San
Francisco, and that the indebtedness to Strong Hope Limited and
Permanent Union Limited was related to that activity. We
accordingly find that Strong Hope's indebtedness was connected with
its business in the United States.
To conclude, we hold that Strong Hope realized discharge of
indebtedness income of $516,903 in 1989.
Issue 9. Stockton Property Basis
For purposes of calculating the amount of gain realized by
Strong Hope under section 336(a) on the distribution of the
Stockton Street property to Ms. Ng, respondent reduced Strong
Hope's adjusted basis in the Stockton Street property. In this
regard, respondent contends that Strong Hope understated the
accumulated depreciation by $45,820 when it reported the sale of
its interest in the property, and second, that a roofing expense of
$10,729 which Strong Hope added to basis was not substantiated.
Strong Hope does not contest respondent's depreciation adjustment.
However, with respect to the roofing expense, Strong Hope asserts
that respondent knows that this expense was incurred. The evidence
is not sufficient to substantiate the claimed roofing expense.
Accordingly, we sustain respondent's adjustments to Strong Hope's
basis in the Stockton Street property.
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