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Weeden, either as a loan or as a contribution to capital,
and paid the moneys to WAI in return for WAI's work on the
CPI project. In this regard, we note that Mr. Whelpley's
memorandum dated September 9, 1991, suggests that "WAI
applied these amounts to reduce bills written to CPI by
WAI." Mr. Whelpley also testified the he "conducted all of
the business of CPI within Whelpley Associates." Thus, the
record suggests the possibility that CPI retained WAI to do
the work required under CPI's contract with Avant-Garde and
applied Weeden's advances to pay WAI for that work. We
also note that because WAI reported these funds as gross
income on its 1987 return, petitioners must present cogent
evidence to overcome this admission. See e.g., Estate of
Hall v. Commissioner, 92 T.C. 312, 337-338 (1989). We find
that petitioners have failed to meet this burden, and thus
they have failed to prove that the amount of the advances
is not includable in WAI's income in 1987, as determined
by respondent.
Petitioners' principal position is that, upon receipt
of the cash payments from Weeden, WAI ceased to be a "small
business corporation", as defined by section 1361(b)(1)(D),
with the result that WAI's S corporation election auto-
matically terminated as provided by section 1362(d)(2).
As a result of the termination of WAI's S corporation
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