- 5 -
existed. As of July 1989, petitioner owned 88 percent of the
outstanding shares of Snacks stock. Petitioner’s accountant and
the accountant’s wife jointly invested $100,000 in exchange for 4
percent of Snacks stock. In addition to petitioner’s and his
accountant’s stock ownership in Snacks, during 1990, new
investors Donald Parker purchased 5 percent of Snacks stock for
just over $150,000, and Al Marquez obtained 3 percent of Snacks
stock with a value exceeding $100,000.
Petitioner and the accountant had begun their professional
relationship during 1974. During 1993, although the accountant
believed that Snacks would not be successful, he also believed
that the vending machine patent could have residual value for
future development and decided to pay petitioner $5,000 for
petitioner’s shares in Snacks. That sale caused petitioner to
claim a $115,000 loss, $100,000 of which was claimed as an
“ordinary” loss under section 1244.3 This loss is not presently
at issue before the Court.
Snacks entered into a relationship with K&H involving the
development and manufacture of a vending machine. Expecting to
be repaid, K&H incurred costs in attempting to develop a
merchantable vending machine. Petitioner was designated as
3 Section references are to the Internal Revenue Code as
amended and in effect for the years under consideration. Rule
references are to this Court’s Rules of Practice and Procedure.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011