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apply because the corporation’s deductions exceeds its net
income. Sec. 1.1244(c)-1(e)(2), Income Tax Regs.; Davenport v.
Commissioner, supra at 928-929. This provision of the
regulations is valid. Davenport v. Commissioner, supra.
2. Contentions of the Parties
Petitioners contend that petitioner’s FabuGlass stock
qualifies as section 1244 stock and that they may deduct $100,000
as an ordinary loss under section 1244(a) in 1995. Respondent
contends that petitioner’s FabuGlass stock does not qualify as
section 1244 stock because: (a) FabuGlass derived less than 50
percent of its aggregate gross receipts from sources other than
nonoperating sources, and FabuGlass’ gross income exceeded its
deductions for 1990-94; and (b) FabuGlass was not largely an
operating company during 1990-94. Petitioners contend that
FabuGlass’s deductions exceeded its gross income for 1990-94 and
that FabuGlass was largely an operating company during 1990-94.
Petitioners bear the burden of proving that petitioner’s
FabuGlass stock qualifies as section 1244 stock. Rule
142(a)(1).4
4 Sec. 7491 applies to court proceedings arising in
connection with examinations commencing after July 22, 1998.
Sec. 7491(a) does not apply here because the examination of
petitioners’ 1995 return began in 1997.
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