Bill L. and Patricia M. Spencer - Page 11

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          issued to its shareholders, Mr. Spencer and Mr. Boozer.9                    
          Following SPC-SC's incorporation, Mr. Spencer and Mr. Boozer each           
          owned 50 percent of SPC-SC's stock.  During the years in issue,             
          SPC-SC was a calendar year S corporation within the meaning of              
          section 1361.  Mr. Spencer was the chief executive officer and              
          treasurer of SPC-SC, and Mr. Boozer served as its chief operating           
          officer.  Petitioner Patricia M. Spencer (Mrs. Spencer), also a             
          corporate officer, worked at SPC-SC as an office clerk.                     
          Nominal Resale of Carolina Assets to SPC-SC                                 
               During June 1987, the SPC-SC shareholders, Mr. Spencer and             
          Mr. Boozer, nominally conveyed the same assets acquired in the              
          Carolina transaction to SPC-SC in consideration of $1,170,000.              
          Neither that conveyance nor the consideration for the transaction           
          (hereinafter referred to as the SPC-SC nominal debt) was                    
          Payment Flow                                                                
               All payments on the $900,000 S/B note and the $250,000 bank            
          loan have been made from SPC-SC's current corporate revenues.  No           
          payments have been directly made by the SPC-SC shareholders, Mr.            
          Spencer and Mr. Boozer.                                                     

          9    Mr. Boozer is unrelated to Mr. Spencer.                                
          10   The parties stipulated that the "note" from SPC-SC to the              
          SPC-SC shareholders was never documented.  We take this                     
          stipulation to mean that the consideration given by SPC-SC to its           
          shareholders took the form of a debt that was never documented by           
          a note.                                                                     

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