Venture Funding, Ltd. - Page 4

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          Petitioner did not issue to any of these employees, or to                   
          respondent, a Form W-2, Wage and Tax Statement, or a Form                   
          1099-MISC, Miscellaneous Income, and none of these employees                
          included any of this compensation in his or her 1988 gross                  
          income.  Petitioner claimed a $1,078,672 deduction for the                  
          transfer on its 1988 Federal income tax return.  Petitioner filed           
          its 1988 return based on the calendar year.                                 
                                     Discussion                                       
               Respondent determined that petitioner could not deduct the             
          claimed amount because it failed to meet the requirements of                
          section 83.2  Petitioner must prove this determination wrong.               
          Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).                  
          Petitioner also must prove its entitlement to the deduction.                
          Deductions are a matter of legislative grace.  New Colonial Ice             
          Co. v. Helvering, 292 U.S. 435, 440 (1934).                                 
               Petitioner argues that section 83(h) and the underlying                
          regulations let it deduct the claimed amount in 1988 because                
          petitioner's employees were required to recognize the                       
          corresponding income in that year.  The fact that the employees             
          failed to recognize this income in 1988, petitioner argues, has             
          no bearing on its right to this deduction.  Petitioner argues               
          that respondent's regulations are invalid to the extent that they           


               2 Respondent determined alternatively that petitioner                  
          realized a $1,078,672 capital gain on its distribution of the               
          stock.  Because we agree with respondent's primary position, we             
          do not address the alternative determination.                               



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