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Petitioner proffers an alternative argument. Cold Springs
failed to file corporate tax returns after the taxable year ended
December 31, 1993. Because no corporate returns were filed and
no Schedules K-1 were prepared, there is no information available
upon which to make an allocation of the distributions to her from
Cold Springs with respect to ordinary income and capital gain.
Petitioner argues, therefore, that we should make such an
allocation on the basis of extrapolations from Cold Springs' 1992
and 1993 tax returns.
Petitioner asks the Court to recharacterize ordinary income,
as she reported it on her individual income tax returns, as long-
term capital gain, on the basis of her contention that "it is
very likely, if not certain, that a substantial portion of the
income would have been [so] characterized" if Cold Springs had
filed returns in 1994 and 1995. Petitioner contends that
approximately 67 percent of the income that she received from
Cold Springs during 1994 and 1995 should be recharacterized as
long-term capital gain pursuant to section 1231. Petitioner’s
contention is rooted in the treatment of the distributions from
Cold Springs' 1992 and 1993 income tax returns where 64 percent
and 70 percent, respectively, of the funds distributed were
characterized as section 1231 gains.
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