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(1994). This doctrine ensures that the transaction has some
economic substance beyond the creation of a tax deduction. Oren
v. Commissioner, 357 F.3d 854, 857 (8th Cir. 2004), affg. T.C.
Memo. 2002-172.
II. The Parties’ Positions
On his 1997 tax return, petitioner claimed the $792,752
Marc loss (carried forward from 1996), on the premise that
various events during 1997 created at least that much adjusted
basis in his Marc stock and debt. Petitioner was unable to use
this entire loss in 1997 and carried a portion of it back to
1994. In the notice of deficiency, respondent disallowed the
$792,752 loss on the ground that as of December 31, 1997,
petitioner had zero adjusted basis in the Marc stock and debt.5
In this proceeding, the parties have narrowed their
differences. Respondent now concedes that as of December 31,
1997, petitioner had adjusted basis in Marc stock of $321,859,
representing the income realized by Marc during 1997 and
allocable to petitioner as Marc’s sole shareholder.6
5 Respondent’s disallowance of petitioner’s claim to the
$792,752 Marc loss resulted in deficiencies for both 1997 and the
1994 carryback year. Apart from challenging the adequacy of
petitioner’s basis in Marc for 1997, respondent has not
challenged the propriety of petitioner’s carryback of the
$792,752 of Marc losses from 1997 to 1994.
6 The $321,859 is made up of $189,748 ordinary income from
Marc’s trade or business activities during 1997, Marc’s $133,975
of 1997 investment income, and a $1,864 sec. 1231 loss realized
(continued...)
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