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2In his 1990 Federal income tax return, petitioner
included $800,000 in contingent legal fees in the basis
of his stock. In the brief, petitioners admit that
this was in error, and that the contingent portion of
the fees amounted to only $500,000; thus, the $300,000
actually paid by petitioner was reported twice on his
Federal income tax return. Accordingly, we will
discuss this issue using the $500,000 amount as
conceded by petitioner.
The difference between $1,969,740 (amount received for
shares of PMI stock) and $1,469,309 was reported in petitioner's
1990 Federal income tax return as a long-term capital gain of
$500,431.
Respondent, in her notice of deficiency, determined that the
$3,250,071 received from PepsiCo was paid as consideration for
petitioner's PMI stock, and no amounts were excludable under
section 104(a)(2). Further, respondent limited petitioner's
basis in the PMI stock to the $200,000 initially invested by
petitioner.
Investment Interest Expense
Petitioner deducted $156,441 as investment interest expense
in his 1990 Federal income tax return and reported $1,224,395 as
an investment interest expense carryforward. These amounts
related to petitioner's various loans from the bank.
Petitioner borrowed money from the bank on various dates
throughout the 1980's. In return, petitioner executed promissory
notes in favor of the bank, secured by petitioner's PMI stock and
the assets of several other business ventures controlled by him.
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