- 2 -
Year Amount
1990 $57,405
1991 178,902
1992 132,150
1993 142,110
The amounts remaining in controversy, in great part, derive from
questions about whether petitioner’s S corporation’s claimed
deductions for losses and interest are allowable. In particular,
the controversy involves whether advances from the S corporation
to a second corporation constitute debt or equity. If the
advances are held to be debt, then we must decide whether it was
business debt and whether it became worthless as claimed. We
also decide whether petitioner is entitled to deduct interest
paid on indebtedness incurred to purchase a yacht.
FINDINGS OF FACT2
Petitioner resided and/or conducted business in the State of
California, at the time his petition was filed. During the years
in issue, petitioner was the sole shareholder of K&H Finishing,
Inc. (K&H), an S corporation. In 1966, K&H began providing
painting services to computer manufacturers in the Silicon
Valley, California, area. As the business matured and through
the years before the Court, K&H would purchase and inventory
parts, assemble and finish them, and then sell and deliver them
to the manufacturer/customer. Although K&H did not place the
2 The parties’ stipulations of facts and exhibits are
incorporated by this reference.
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