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The parties stipulated that petitioners alleged a $7,842,696
basis in Alofs, calculated as follows:
$50,000 Cash contribution with initial ownership of 20%
6,000,000 Loan from taxpayer through Comerica bank
500,000 Loan from selling shareholders backed by CD from taxpayer
196,000 Sales price reduction of Excellence
696,696 Portion of the sales proceeds from Excellence
400,000 Loan from Excellence to Alofs
Respondent disallowed most of these amounts and determined a
basis in Alofs of $877,574, comprising the $50,000 contribution,
$356,760 in sales proceeds from Excellence, and the $470,814
shown on the Schedule K-1 from Alofs for FYE 1995.
The parties likewise stipulated that petitioners alleged on
audit a basis in Target of $2,138,304, which amount included the
initial investment of $35,000 and $2,103,304 in sales proceeds
from Excellence. Respondent, in contrast, computed a basis in
Target of $584,133:
$35,000 Initial investment
1,070,279 Portion of sales proceeds from Excellence
(616,947) Loss for FYE 1995
(70,163) Property distribution for FYE 1994
113,311 Income for FYE 1993
(42,242) Loss for FYE 1992
101,485 Income for FYE 1991
5,675 Income for FYE 19905
(12,265) Loss for FYE 1989
Incorporated in both parties’ computations as sales proceeds from
Excellence are the basis amounts transferred to Alofs and Target
upon the exchange of Excellence shares for those in Alofs and
5 Although the stipulation refers to $5,673 as the amount
from the pertinent Schedule K-1, this would appear to be a
typographical error.
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