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Treatment of the $344,082 distribution amount from the K-1 for
FYE 1996 presents additional complexity in that petitioners seek
to claim a $2,518,616 ordinary loss from Alofs for 1996.
Pursuant to ordering rules contained in regulations promulgated
under section 1367, decreases in basis attributable to losses are
made before those attributable to distributions. Sec. 1.1367-
1(e), Income Tax Regs. However, because the Court concludes for
reasons detailed infra that the $6 million loan incurred in the
LBO transaction generated basis for Mr. Gleason in Alofs and
Target, his basis would appear to be adequate to accommodate both
the claimed losses and tax-free return of basis treatment for the
$344,082 distribution amount. Due to limitations in the record
before us, we leave final calculations to the parties under Rule
155.
C. Claimed Losses and Bases
With respect to their dispute over claimed losses and bases,
the parties have taken the approach of stipulating, first, the
components that petitioners alleged during audit should be
included in computing Mr. Gleason’s bases in Alofs and Target
and, second, which items were allowed and disallowed by
respondent in the basis computations. At trial and on brief,
each side then presented argument focused on specific disputed
components. We structure our discussion in a similar manner.
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