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The note that HS executed for the benefit of Mr. Oren was marked
“Contribute to Capital * * * 12/18/96”.
On December 23, 1996, Mr. Oren satisfied his notes to Dart,
by endorsing the checks he received from HS (#19566) of
$1,906,923.29 and HL (#2651) of $13,448,827.40 to Dart’s bank
account. The notes that Mr. Oren executed for the benefit of
Dart bear a notation reflecting this payment method.
Mr. Oren made total contributions of $19 million to HL and
HS in 1996.8 On December 23, 1996, Mr. Oren made capital
contributions of $1,198,735.36 and $1,301,264.64 to HS. On
December 27, 1996, Mr. Oren made a capital contribution of $16.5
million to HL. Distributions from Dart provided Mr. Oren with
the funds needed to make those contributions. The distributions
were made pro rata to all shareholders of Dart.
Petitioners deducted losses from HL and HS on Form 1040,
U.S. Individual Income Tax Return, in the following amounts:
1993 1994 1995
HL ($4,000,000) ($4,614,944) ($5,605,248)
HS (146,384) (66,363) (2,046,251)
8On the advice of their tax advisers, petitioners filed a
Form 1040X, Amended U.S. Individual Income Tax Return, for
taxable year 1996. Attached to that return is a document which
states that the return was being filed as a protective claim.
Petitioners stated that if they should lose the Tax Court case,
they were claiming sufficient basis in 1996 from which to deduct
the losses. Petitioners based their claim on the capital
contributions made in 1996 by Mr. Oren to HL and HS.
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