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Hammontree. Petitioner used the $29,788.59 to pay off
outstanding debts of FAP.
For the short tax year beginning March 1, 1989, and ending
December 31, 1989, Glenwood elected S corporation status.
Glenwood filed Form 1120S, and reported ordinary income of $8,920
and claimed $8,900 in section 179 expenses. The Glenwood Form
1120S reflected that petitioner and Hammontree were 50-percent
shareholders for the short tax year ending December 31, 1989.
During the examination of petitioners, respondent determined
that the $29,788.59 received by petitioner was a distribution
from Glenwood reducing petitioner’s basis in Glenwood.
In July 1992, petitioner sold his one-half interest in
Glenwood to Hammontree for $42,930. Petitioner received a
cashier’s check for $40,000 from Hammontree and a separate check
directly from Glenwood for $2,930. Petitioners reported a
capital gain from the sale of Glenwood stock in the amount of
$19,344 on their 1992 Form 1040, U.S. Individual Income Tax
Return. Respondent determined that petitioners understated their
capital gain on the sale of Glenwood by $10,635.
The Murray Avenue Auction
In 1986, petitioner began working for the Murray Avenue
Auction (the auction). The auction was wholly owned by
petitioner’s father, John Flood, until 1987. On January 1, 1987,
petitioner’s stepmother, Willene Flood, acquired an ownership
interest in the auction and applied for a certificate of
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