Brazoria County Stewart Food Markets, Inc. - Page 2




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          section 166.1  The remainder of respondent’s deficiency                     
          determinations resulted purely from computational adjustments               
          caused by the disallowance of petitioner’s ordinary loss                    
          deduction.                                                                  
               Petitioner contends that, in form and substance, the                   
          advances were loans that became worthless and deductible.                   
          Respondent’s disallowance of the claimed bad-debt loss was                  
          grounded on the same position that respondent maintains in this             
          litigation; i.e., petitioner’s advances to a related corporation,           
          Used Power Equipment, Inc. (UPE), were equity investments in UPE            
          and there was no intention for UPE to repay the advances.  In               
          support of his position, respondent questions the validity,                 
          credibility, and enforceability of petitioner’s promissory notes            
          and contends UPE was insolvent at the time the advances were                
          made.  Respondent ultimately contends that the advances were                
          contributions to capital made to further petitioner’s sole                  
          shareholder’s control of and investment in UPE, the loss of which           
          is a capital loss deductible only to the extent of capital gains            
          under section 1211.                                                         






               1 Unless otherwise stated, all section references are to the           
          Internal Revenue Code in effect for the taxable year remaining in           
          issue, and all Rule references are to the Tax Court Rules of                
          Practice and Procedure.                                                     




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Last modified: May 25, 2011