Bill L. and Patricia M. Spencer - Page 28

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          the transactions in issue, respondent contends that the substance           
          of the transactions was a sale by SSI of its business assets to             
          two S corporations, SPC-SC and SPC-FL, rather than a sale to                
          petitioners followed by a sale by petitioners to the two S                  
          corporations, as petitioners contend.  Specifically, respondent             
          points to following indicators:  (1) The lack of documentation              
          concerning the conveyance from petitioners to SPC-SC and SPC-FL;            
          (2) the lack of direct payments by petitioners to SSI and SCNB;             
          (3) petitioners' failure to report as interest income and claim             
          as interest deductions amounts allegedly paid on their behalf by            
          the S corporation to SSI and SCNB; (4) SSI's failure to enforce             
          against petitioners the acceleration clauses contained in the S/B           
          and S/S/S notes when SPC-SC and SPC-FL suspended payment due to             
          poor cash-flow; and (5) the fact that SPC-SC and SPC-FL reported            
          the debt incurred to acquire the assets on Schedule L as                    
          "mortgages, notes, and bonds payable in 1 year or more" rather              
          than as shareholder debt.                                                   
               Respondent contends that petitioners' only involvement in              
          the transactions was in their capacity as shareholders.                     
          Consequently, respondent asserts, because there is no                       
          indebtedness running directly from the S corporations to                    
          petitioners, petitioners' bases in SPC-SC and SPC-FL do not                 
          include the indebtedness owed by the corporations.  Respondent              







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