Midwest Stainless, Inc. and Robert A. and Mary J. Lechner - Page 11

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                  The parties have stipulated that the journal entry evidenced                         
            the receivable as valid debt of Mr. Lechner to Stainless.5                                 
            Although in many cases we have found that corporate accounting                             
            entries setting up a receivable from a shareholder were equivocal                          
            and insufficient to create valid debt, particularly in the                                 
            absence of an accompanying note and interest payments, see, e.g.,                          
            Haber v. Commissioner, 52 T.C. 255, 266 (1969), affd. 422 F.2d                             
            198 (5th Cir. 1970), the pattern of repayments and reductions of                           
            the receivable, evidenced by Mr. Lechner’s payment of the                                  
            liabilities for the associated expenses, supports the treatment                            

            to make the payments, the transferee corporation, if it also uses                          
            the cash method, is treated as a successor and allowed to report                           
            the receipts and payments on its own income tax return if the                              
            receivables and payables were transferred to it in the sec. 351                            
            exchange.  However, there is no intimation in the foregoing                                
            authorities that the receivables and payables must be so                                   
            transferred; an acceptable alternative would be for the                                    
            transferor to retain and collect and pay the respective                                    
            receivables and payables and to use the new corporation to make a                          
            “fresh start” with new business.  We treat as of no account the                            
            discrepancy between the recital in the sec. 351 statement that                             
            the only liability assumed by Stainless was withheld payroll                               
            taxes and its claiming of Mr. Lechner’s payments of liabilities                            
            related to the work in progress as its deductible expenses.                                
            5 If the journal entry had not been so stipulated, Mr.                                     
            Lechner’s taking of the corporate receipts would have been                                 
            treated as a constructive distribution to him in 1993, taxable as                          
            a dividend to the extent of corporate earnings and profits for                             
            the corporate fiscal year in which it occurred, and his payments                           
            of the expenses would have been treated as capital contributions                           
            to Stainless.                                                                              

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