- 21 -
was substantially indebted at the time of the transfer. United
States v. Fernon, supra at 613 n.10; Bay View Estates Corp. v.
Southerland, 154 So. at 899; Banner Constr. Corp. v. Arnold, 128
So. 2d at 896.
House of Babes was insolvent after it was liquidated in
August 1986 because it had no assets and no ability to pay its
debts thereafter.
Petitioners contend that House of Babes was not insolvent
because there is no evidence that it formally assigned the
buyer's note to House of Babes' shareholders. We disagree.
The parties stipulated that House of Babes was liquidated in
August 1986. The liquidation occurred on August 14, 1986. House
of Babes had become liable for its 1984 and 1985 Federal income
taxes by August 1986. Hagaman v. Commissioner, 100 T.C. 180
(1993) (liable on last day of tax year). Thus, House of Babes
was substantially indebted when it transferred the note to its
shareholders. Even more basically, we have found, see par. A-1-
a, above, that the shareholders treated the note as theirs and
payment of the principal and interest on the note by the buyers
to House of Babes' shareholders shows that the note was
transferred to them; it is inescapable that after that transfer
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