T.P. and Najieh R. Crigler - Page 12




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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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