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Shareholder has transferred Four Hundred Seventy-
Five Thousand ($475,000.00) Dollars of notes and
accrued interest of the Corporation due Shareholder as
of 11/1/91 to the equity account of the Corporation and
has made this an irrevocable capital contribution to
the Corporation. The notes, accrued interest and
capital lease due Shareholder as of the Closing have
been tendered to Buyer in exchange for Buyer notes.
Petitioner wrote "PAID IN FULL" and the date of "12-20-91" on
each note.
Petitioners' 1991 Federal income tax return (the 1991
return) was prepared by Russell Marshall, a certified public
accountant. Mr. Marshall advised petitioner that the transaction
in which petitioner transferred his interest in BCBI to the
Hansens resulted in a long-term capital loss, only a portion of
which was currently deductible. On the Schedule D attached to
their 1991 return, petitioners reported a basis of $1,743,492 in
the BCBI stock and reported a long-term capital loss of $693,492
from its sale.2 Petitioners deducted $3,000 of this loss and
treated the remaining portion as a long-term capital loss
carryover to 1992.
On March 26, 1993, petitioners filed an amended 1991 return.
On the amended return, petitioners treated the BCBI stock as
small business stock defined by section 1244 and claimed an
2In preparing petitioners' original and amended 1991 Federal
income tax returns, the allocation schedule in the agreement was
obviously ignored, and petitioners reported the transaction as
though the entire purchase price was attributable to the sale of
BCBI stock. See infra note 3.
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