-7-
Cirtex stock. Although Mrs. Yei testified that the company had not
been profitable since 1984, her testimony is contradicted by Mr.
Yei's statements made in a stockholders' report that Cirtex had an
$80,000 profit in 1988. In his report, given at a stockholders'
meeting on June 10, 1989, Mr. Yei stated:
For 1989, our new philosophy becomes more
conservative. The objective is to give
stockholders some returns, especially those
who had invested for more than three years. *
* * If we can maintain a profit level at 10-
15%, our stock [price] per share shall have a
market value between $2.00 to $3.00.
In any event, Fink contemplated that no loss deduction is
available to a controlling shareholder who voluntarily surrenders
a portion of his stock "before the corporation fails".
Commissioner v. Fink, 483 U.S. at 98. Accordingly, respondent's
disallowance of the claimed $60,000 capital loss is sustained.
Issue 2. Wage Income
Petitioners reported combined wages of $84,000 from Cirtex in
1989. They contend that $45,000 of the $84,000 reported as wages
represent the repayment of loans they made in 1986 and 1989. In
the alternative, they claim entitlement to a $45,000 bad debt
deduction under section 166. Respondent contends that the $45,000
in payments that petitioners made to Cirtex constitute capital
contributions, not loans, and that the entire $84,000 constitutes
wages as reported on petitioners' 1989 return.
Petitioners claim they advanced Cirtex a total of $40,000 in
1986 and $5,000 in 1989. According to petitioners, these payments
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