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did BERM distribute its assets to petitioner in a complete
liquidation during 1994 so that from that date forward,
petitioner operated the business as a sole proprietorship?
Petitioner contends that BERM had completed a de facto
liquidation of its assets to him, as the sole shareholder, in
December 1994. Petitioner further contends that upon
liquidation he held BERM’s former assets as a sole proprietorship
and continued to run the restaurant located at the Holiday Inn.
Thus, petitioner is entitled to claim the losses on his Schedule
C for the taxable year 1995.
Respondent contends that BERM was not dissolved until the
State of Illinois administratively dissolved it in July 1995 for
failure to file its annual filings and pay an annual franchise
tax. Respondent further contends that petitioner failed to show
that a liquidating distribution occurred in 1994; thus, BERM was
the true owner of the assets during 1995 and petitioner is not
entitled to personally deduct the operational and abandonment
losses.
Whether a corporation has liquidated is a question of fact.
See Wood v. Commissioner, 27 B.T.A. 162, 167 (1932); Murphy v.
Commissioner, T.C. Memo. 1996-59. This Court has applied a
three-pronged test in making a factual determination that a de
facto liquidation had occurred for Federal tax purposes: (1)
Whether there is a manifest intention to liquidate; (2) whether
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