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With respect to the 2000 tax year, petitioners contend that
the basis of each $1,100,000 advance was first reduced by the
$800,000 repayments on January 3, 2000, and then further reduced
by $300,000 of pro rata company losses, resulting in a zero debt
basis at the close of 2000.
II. Computation of Gain
A. Respondent
With respect to the 1999 tax year, respondent determined
that (1) petitioners in docket No. 8981-03 had a taxable gain of
$500,000 related to the repayment of January 5, 1999 ($500,000
repayment less zero debt basis), and (2) petitioners in docket
No. 8983-03 had a taxable gain of $500,000 related to the
repayment of January 5, 1999 ($500,000 repayment less zero debt
basis).13
13Respondent attached to the docket No. 8981-03 statutory
notice of deficiency the following calculation of taxable gain on
debt repayment:
Computation of Taxable Debt Repayment
1997 loan from shareholder 500,000
Less: 1997 loss applied to basis (195,042)
Less: 1998 loss applied to the basis (319,875)
1997 loan basis 0
1999 loan repayment 500,000
Taxable gain on loan repayment 500,000
Respondent attached to the docket No. 8983-03 statutory notice of
deficiency the following calculation of taxable gain on debt
repayment:
Computation of Taxable Debt Repayment
(continued...)
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