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Respondent determined the subject deficiencies in the younger
Mr. Whelpley's 1987 and 1989 returns based solely on the
above adjustments to his share of income from WAI.
Based upon the above adjustments to WAI's taxable
income, respondent also determined increases in Mr. and
Mrs. Whelpley's distributable income from WAI of $106,860
in 1987 and $70,813 in 1989, computed as follows:
1987 1989
WAI's corrected income $96,711 $85,435
Distributable share, 87.5% 84,622 74,756
Section 179 deduction (8,620) (8,750)
76,002 66,006
Loss from WAI, per return 30,858 4,807
Adjustment 106,860 70,813
Respondent made the above adjustments to Mr. and Mrs.
Whelpley's 1987 and 1989 returns in determining the subject
deficiencies.
The only issue raised at trial involved petitioners'
claim that the advances made by Weeden should not have been
included in WAI's income. Petitioners argued at trial that
Weeden's advances constituted either an equity investment
in WAI by an ineligible shareholder, or a second class of
stock in WAI, which in either event terminated WAI's S
corporation election. Petitioners also argued that, if
the advances constituted loans from Weeden that were
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