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thereby causing it to lose its S corporation status in 1986.
Thereafter, petitioner filed amended 1996 and 1997 returns in
which she took a position, vis-a-vis LPP’s earnings, consistent
with that taken in her 1998 return.
LPP’s 1997 Form 1120S, U.S. Income Tax Return for an S
Corporation, reports $160,562 of ordinary income from trade or
business activities, total distributions to shareholders of
$91,460, retained earnings at the start of the year of $582,933,
and yearend retained earnings of $649,035. LPP’s 1998 Form 1120S
reports $566,153 of ordinary income from trade or business
activities, total distributions to shareholders of $32,946, and
yearend retained earnings of $1,182,242. The 1998 Schedule K-1
issued to Julian W. and petitioner do not list any amount as
having been distributed to them.8
LPP filed Forms 1120S for tax years 1976-98. Except for her
amended 1996 and 1997 Federal returns, for all tax years prior to
1998 during which she was a shareholder in LPP, petitioner
included in income all LPP pass-through items in conformance with
the Schedule K-1 issued to her by LPP.
Petitioner’s 1999 Transfer of One Share of LPP
On June 7, 1999, petitioner contributed one share of her LPP
stock to H.C. Chemicals, Inc. (HCC), which had been incorporated
by her daughter, Heather Minton Fuller (Heather), on June 4,
1999. Heather became the president and sole shareholder of HCC,
8 LPP’s financial records for 1998, however, do reflect
1998 distributions to Julian W. and petitioner in the sum of
$32,946.
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