- 34 -
in order to have basis in the corporate indebtedness. Mr.
Spencer further testified that he was "very familiar with what
the documents needed to say." In light of such advice and
knowledge, we find it significant that Mr. Spencer did not follow
through with all of the necessary steps. Based on our thorough
review of the evidence contained in the record, we conclude that,
in substance, SSI sold certain operating assets directly (1) to
SPC-SC, in exchange for $270,000, in cash and a $900,000
promissory note,26 and (2) to SPC-FL, in exchange for a
$1,150,000 promissory note. Accordingly, we find that there is
no direct indebtedness between the S corporations and
petitioners.27 It follows that payment by SPC-SC and SPC-FL to
SSI and SCNB was not on petitioners' behalf.
26 Consideration for the assets consisted of $270,000 in cash
plus a $900,000 promissory note, for a total purchase price of
$1,170,000. SPC-SC borrowed $250,000 of the cash paid at closing
from SCNB. The source of the remaining $20,000 is not clear.
Thus, at the very least, SPC-SC paid $1,150,000 ($1,170,000 less
$20,000) in exchange for the SSI's South Carolina operating
assets.
27 As we find no direct indebtedness, we need not reach the
question of whether there was the requisite "economic outlay".
See Estate of Leavitt v. Commissioner, 90 T.C. 206, 217 (1988),
affd. 875 F.2d 420 (4th Cir. 1989); Prashker v. Commissioner, 59
T.C. 172 (1972); Raynor v. Commissioner, 50 T.C. 762, 770-771
(1968). Furthermore, because of our finding with respect to the
substance of the transactions in issue, we need not consider
petitioners' contentions concerning the consequences of the so-
called back-to-back sales transactions. Petitioners' position
regarding the so-called back-to-back sales transaction is
dependent on a finding that the substance of these transactions
is equivalent to the stipulated form--an argument that we
considered and rejected.
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