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their C corporation are to be characterized as loans (as
petitioners maintain) or capital contributions (as respondent
maintains); and if the advances are to be characterized as loans,
further inquiry must be made into (a) whether the loans were
business or nonbusiness debts and (b) whether the loans became
worthless in 1990; and (4) whether petitioners are liable for the
section 6662(a) accuracy-related penalty.
FINDINGS OF FACT
Some of the facts have been stipulated and are found
accordingly. The stipulation of facts and the attached exhibits
are incorporated herein by this reference.
Background
Petitioners, husband and wife, resided in San Juan Capistrano,
California, at the time they filed their petition.
On September 25, 1990, petitioners filed their 1989 Federal
income tax return. In February 1993, petitioners and respondent
executed a Form 872-A, Special Consent to Extend the Time to Assess
Tax, with respect to tax year 1989. In April 1994, they executed
a Form 872-A with respect to tax year 1990.
Petitioners’ Corporations
During the year at issue, petitioners were the sole
shareholders of two California corporations: Hamdan Project
Development (HPD), formed on May 24, 1984, and HPD-Latigo Corp.
(HPD-Latigo), formed on July 14, 1987. Khalil Hamdan (petitioner)
was the president of both corporations.
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