William Whelpley, Jr. - Page 14

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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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