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last annual report was filed with Alabama's secretary of state's
office. The sale, in 1993, was reported on petitioner's Federal
income tax return, showing no gain because petitioner reported
both the sales price and adjusted basis of the property as
$33,730. During its life, petitioner did not rent or lease the
property to others. It did not keep books, maintain a bank
account, or hold regular meetings. Using personal checks and
cash, petitioner's shareholders covered the expenditures for
repairs and improvements made on the property.
Respondent determined in the notice of deficiency that
petitioner must include the gain of $112,053 from the sale of the
property in its 1993 income but that it was entitled to deduct an
unused loss carryover from 1992 of $9,290.
Discussion
Respondent's determination that petitioner must report its
realized gain on the 1993 sale of property is presumed to be
correct, and petitioner has the burden of proving otherwise.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 114 (1933).
Hooper and Chamblee, as officers of petitioner, argue that
they did not intend to incorporate petitioner and did not know,
until 1995, that a lawyer friend had, in fact, incorporated it.
They contend that petitioner was not a business venture, and its
corporate existence should therefore be disregarded.
State law determines whether a corporation has been
organized. See Stoody v. Commissioner, 66 T.C. 710, 716 (1976);
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Last modified: May 25, 2011