- 21 -
Petitioners have failed to establish that any AAA existed
for either Bonnevista or Castle Towers at the time of the
discharge of petitioner’s indebtedness in 1993.17 In the absence
of such evidence, it is not unreasonable to assume that in 1993
there was no AAA for either of these financially troubled
corporations, especially since prior losses have the effect of
reducing the AAA. See secs. 1367 and 1368.
Furthermore, as previously discussed, petitioners have
failed to show that Bonnevista and Castle Towers had accumulated
earnings and profits in 1993 less than the amount determined by
respondent to represent ordinary income from the discharge of
petitioner’s indebtedness by each of these corporations.
Accordingly, we sustain respondent’s determination that the
discharge of petitioner’s indebtedness to Bonnevista and Castle
Towers gave rise to ordinary income.
III. Net Operating Loss Deduction Carryover
On their 1993 Federal income tax return, petitioners claimed
a net operating loss deduction of $3,992,234, comprising net
operating loss carryovers for each of the years 1986 through
1991. In the case of net operating loss deductions, as with
other deductions, petitioners bear the burden of proving their
entitlement to the claimed deductions. See Rule 142(a); Jones v.
17 On its 1991 Form 1120S, Bonnevista reported no AAA. On
its 1990 Form 1120S, Castle Towers reported AAA of $248,028 as of
Dec. 31, 1990.
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011