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$166,831 reported on the Form 1099 as income paid by CRC to Tony.
Conley, McDonald & Sprague provided the agent with summary sheets
(created by Conley, McDonald & Sprague from CRC’s records)
describing the manner in which the income reported on the Form
1099 was calculated. On the basis of this investigation,
respondent determined that, consistent with the information
reported on the Form 1099, CRC had redeemed Tony’s shares for
$166,831, representing a cash payment of $50,000 plus discharge
of all Tony’s obligations to CRC, totaling $116,831. Moreover,
respondent determined that petitioners had failed to substantiate
any basis in the CRC stock. Consequently, in the notice of
deficiency, respondent determined that petitioners must recognize
$166,831 of capital gain from Tony’s disposition of his CRC
shares and accordingly increased petitioners’ taxable income by
$116,831 ($166,831 less the $50,000 capital gain that petitioners
reported on their 1992 return).
In addition, respondent determined that Tony did not engage
in his stock car activity for profit. Respondent limited
petitioners’ claimed deductions from this activity to $5,571,
which was the gross income that petitioners reported therefrom.
OPINION
A. Capital Gain From Stock Redemption
The parties disagree as to whether petitioners recognized
$50,000 in capital gains from CRC’s redemption of Tony’s stock,
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Last modified: May 25, 2011