Thomas and Janice Gleason - Page 19

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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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