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Petitioners’ second argument is that since petitioner was
the sole shareholder of WIS, any loss sustained by WIS
represented a loss of his investment. “It only makes sense that
the losses had to come from somewhere and since TW was the only
stockholder the losses had to come out of his pockets in some
form”. Considering the way in which petitioners computed these
losses, the fallacy in their argument is obvious. The $136,748
loss they claimed on their 1991 return represented the excess of
WIS’s liabilities over its assets. This is precisely the extent
to which the company’s losses came out of the pockets of its
creditors. In all likelihood, most of these losses were borne by
third-party creditors. There is no necessary relationship
between the extent of WIS’s insolvency in 1991 and the amount of
petitioner’s investment loss.
Of the total proven investment of $98,015 as of the end of
1990, a deposit into WIS’s bank account in February 1990 in the
amount of $14,000 and a deposit into WIS’s account in August 1990
in the amount of $15,000 are designated on the deposit slips as
loans. Consequently, we are satisfied that as of the end of 1990
the basis of WIS’s indebtedness to petitioner was $29,000 and the
basis of petitioner’s stock in WIS was $69,015.
2. Effect of Business Reincorporation Transaction on
Petitioner’s Basis in and Allowable Losses Respecting SPS
Petitioners contend that petitioner acquired an initial
basis in SPS stock of $34,309. This amount represents the sum of
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