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During 1990, LB&M made a cash distribution (1990 cash
distribution) to each of the selling LB&M shareholders. None of
those shareholders reported any capital gain with respect to the
1990 cash distribution in the Federal income tax return that each
such shareholder filed for 1990. That is because, except for one
of the selling LB&M shareholders,1 the treatment by each of those
shareholders of the alleged LB&M liability as an increase in such
shareholder's basis in LB&M caused such shareholder's basis in
LB&M to exceed such shareholder's 1990 cash distribution.
Respondent mailed notices of final S corporation administra-
tive adjustment for 1990 (1990 FSAA) and 1991 (1991 FSAA),
respectively, to Steve Doerfel (Mr. Doerfel) in his capacity as
the tax matters person (original tax matters person) of LB&M. In
the 1990 FSAA, respondent made adjustments to certain subchapter
S items of LB&M and purported to make adjustments to (1) the
capital gains of certain shareholders of LB&M "on Cash Distribu-
tions in Excess of Basis" and (2) the capital losses of certain
of those shareholders because of the "basis limitation provisions
of Section 1366(d)".
The original tax matters person timely filed a petition with
respect to the 1990 FSAA and a petition with respect to the 1991
1 One of the selling LB&M shareholder's basis in LB&M would have
equaled or exceeded the 1990 cash distribution that such share-
holder received even if such shareholder had not increased his or
her basis in LB&M by the alleged LB&M liability to such share-
holder.
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Last modified: May 25, 2011