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that he has substantiated the following payments on the S
corporation’s behalf for the purposes indicated:
Date Amount Payee Purpose
January 1992 $794.08 Edward R. Rycheck Legal Fees
May 1992 5,000.00 James Garrett Start-up
November 1992 22,000.00 Star Bank Repayment
James Garrett
Conversion
Respondent, on the other hand, contends that none of the
$28,589 loss is allowable to petitioner. Respondent maintains
that petitioner has not adequately substantiated his basis in
Amazona’s stock,9 and Amazona is not entitled to deduct
unsubstantiated expenses not proven to have been incurred in a
trade or business. We agree with respondent.
It appears that much of the claimed expenses that Amazona
reported for 1992 were actually incurred in 1991. As reflected
by certain bank statements, virtually all the funds deposited to
Amazona’s bank account during 1991 had been withdrawn by Mr.
Garrett before 1992. The 1991 funds deposited to the account
apparently included $22,000 mistakenly credited by the bank to
the account. During 1992, only minimal deposits were made to the
account. Any deductible business expenses Amazona had for 1991
9In this connection, respondent notes that Amazona was
incorporated in May 1991, substantially all its operating funds
were deposited to its bank account during 1991, and Mr. Garrett
had expended almost all the funds in the account by the end of
1991. Respondent maintains that, even if petitioner had made
certain capital contributions to Amazona during 1991, his stock
basis would have to be adjusted by the unknown results of
Amazona’s operations for 1991.
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