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prorated annual lease value of the corporate automobile she drove
in 1994 and 1995 in her income for those years.
Lastly, respondent determined that Christopher, Gregory, and
their spouses are each liable for an accuracy-related penalty for
1994 under section 6662(a) and (b)(1) (for negligence or
disregard of rules or regulations) and that Deborah and her
spouse are liable for an accuracy-related penalty for 1995 under
section 6662(a) and (b)(2) (for substantial understatement).
OPINION
I. Petitioners’ Bases in Cox Tomato
The primary issue for consideration is whether petitioner
shareholders had sufficient bases in their Cox Tomato stock and
in any indebtedness owed by Cox Tomato to them to deduct their
distributive shares of Cox Tomato’s losses for the years at
issue.
Respondent determined that the amount of Cox Tomato’s losses
petitioner shareholders could deduct was limited by their
adjusted bases in Cox Tomato at the end of 1993. Petitioner
shareholders contend that certain transactions in which they
participated increased their bases in Cox Tomato under section
1366(d)(1), thereby allowing petitioners to deduct a larger
portion of Cox Tomato’s losses.
A shareholder of an S corporation may deduct his pro rata
share of any loss sustained by the corporation. Sec. 1366(a). A
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