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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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