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accept that premise arguendo, petitioners bear the burden of
proving that the method they used to compute the amount realized
was reasonable in light of the facts and circumstances.
S. Gaudiano testified that he computed the amount realized
of $145,430 on Four A's amended Form 1120S using two different
methods: (1) A balloon payment calculation using a normal
banking rate of 11-1/4 percent and (2) a junk bond calculation
using a 24- to 25-percent discount rate. S. Gaudiano testified
that the two methods reached similar results.
Neither Four A nor petitioners showed the present value
calculations on their amended returns, and during his testimony
S. Gaudiano failed to explain to the Court how either of his two
alleged methods arrived at an amount realized of $145,430. From
the record, we are unable to discern the specific methodology
employed by S. Gaudiano in making the present value calculations.
Thus, petitioners have failed to establish that the method they
used to compute the amount realized of the note was reasonable or
had a basis in fact. We conclude that petitioners have not
established that they are entitled to increase their section 1231
losses relating to the sale of the equipment by Four A.
III. Bad Debt Deduction
From 1988 to May 6, 1991, Appolo advanced significant
amounts of money to Four A for its working capital needs. In
1991, petitioners, in their capacity as Four A shareholders,
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