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Sunbelt was incorporated in 1981.2 Initially, its sole,
equal shareholders were Craney, Ridge, and an otherwise unrelated
individual, John L. Hutto (Hutto). In 1986, Craney’s shares of
stock were redeemed by Sunbelt, and, from then until January 15,
1993, Ridge and Hutto were the sole, equal shareholders of
Sunbelt. Hutto was president of Sunbelt and chairman of its
board of directors. He was responsible for all executive
functions of Sunbelt. Sunbelt produced and sold pressure-treated
lumber. That business was profitable. In February 1989, based
on Hutto’s experience in the millwork business (manufacturing
doors and window frames), Sunbelt entered the millwork business
(the millwork division). The millwork division lost money from
its inception to its shutdown in mid-1990. Because of Sunbelt’s
management’s focus on the millwork division, Sunbelt’s core
business (pressure-treating lumber) also suffered. Nonetheless,
Sunbelt had over $1.8 million in retained earnings as of the
close of its fiscal taxable year ended June 26, 1993.
Events Leading to Ridge’s Distribution of the Sunbelt Stock to
Ridge’s Shareholders
In 1982, Sunbelt began to borrow money from Citrus and
Chemical Bank, in Bartow, Florida (the Bank), pursuant to a
2 There is a conflict between Stipulation of Facts 15,
which recites that Sunbelt was incorporated in 1983, and Exhibit
43-J, Form 1120, U.S. Corporation Income Tax Return, 1992, for
Sunbelt, which states that Sunbelt’s date of incorporation is
Oct. 16, 1981. We may disregard a stipulation where it is
clearly contrary to the evidence in the record, and we do so
here. See Jasionowski v. Commissioner, 66 T.C. 312, 318 (1976).
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