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claimed a basis in the INVI stock equal to its basis in DIP. On
December 30, 1999, DII sold some INVI stock for $5,716 and
claimed on its 1999 Form 1120S, U.S. Income Tax Return for an S
Corporation, that it had realized on the sale a long-term capital
loss of $29,306,024.8 DII also claimed an ordinary loss of
$1,053,400, resulting from its payment of fees to Jenkens &
Gilchrist. As to the claimed losses, an ordinary loss of
$210,680 (representing petitioner’s share of the fees) and a
long-term capital loss of $5,858,801 (representing petitioner’s
share of the reported capital loss) passed through to petitioner,
who claimed them on petitioners’ 1999 Federal income tax return.
Petitioners claimed on that return that the $5,858,801 long-term
capital loss offset a $5,831,772 long-term capital gain that
petitioner had realized on April 30, 1999, from his sale of his
stock in CTA.
On October 15, 2003, respondent mailed the FPAA for 1999 to
petitioner as DIP’s TMP. Respondent determined in the FPAA that
DIP was not entitled to deduct any of the claimed $110,611 short-
term capital loss, that DIP was not entitled to deduct any of the
claimed $167,477 of interest expenses, that the basis of the
property (other than money) distributed by DIP was zero rather
8 DII’s 1999 Form 1120S reports that the INVI shares that
were the subject of the sale were “acquired” on Dec. 3, 1997.
DII’s 1999 Form 1120S does not report the number of INVI shares
that DII sold on Dec. 30, 1999.
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