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van with a stated basis of $21,139, a computer system with a
stated basis of $97, office furniture and equipment with a stated
basis of $241, and insurance premium renewals with a stated basis
of $245,000.
In return, the corporation issued petitioner 1,000 shares of
stock. The corporation also assumed a $220,468 liability,
evidenced by a note, that petitioner had incurred to acquire his
ex-wife's community property interest in the sole proprietorship.
Assumption of the debt by the corporation did not relieve
petitioner of his primary liability on the note.
Upon incorporation, an account payable of $60,009 was
created on the books of the corporation to pay cash to petitioner
or pay other personal expenses on his behalf in the amounts of
$15,768, $21,540, and $23,951, for the years 1991, 1992, and
1993, respectively.5
Respondent issued a notice of deficiency to petitioners for
taxable years 1991, 1992, and 1993, determining that they must
recognize net capital gain on incorporation of the business in
the amount of $280,477. The explanation of adjustments in the
notice of deficiency states that in taxable year 1991,
petitioners received boot in the amounts of $60,009 in cash from
5Although the parties stipulated the yearly amounts paid to
petitioner, the Court notes that the sum of these three payments
exceeds the $60,009 account payable recorded on the books of the
corporation. It is unclear to what source the additional funds
paid to petitioner were attributable.
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