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Unformatted text preview: 5e461dfc2572414c99be2d8155768d6437ac2d0c.doc. Page 1 of 5 Gary D. and Lindy H. Combrink v. Commissioner. * , [Redemption through related corporations: Wholly-owned corporations: Sole shareholder.], (Aug. 23, 2001) 117 TC 82 Respondent determined a Federal income tax deficiency for petitioners' 1996 taxable year in the amount of $56,449.00. The principal issue to be decided is the proper application of section 304, which could in turn require application of sections 301 and 302, to the facts of this case. The primary dispute in this matter focuses on the proper treatment for tax purposes of certain transactions involving petitioner Gary D. Combrink and two related corporations, Cost Oil Operating Company (COST) and Links Investment, Inc. (LINKS). Mr. Combrink incorporated COST on January 7, 1983, and has at all times owned 100 percent of the company's stock. COST, a subchapter C corporation, is engaged in the operation of working interests in oil and gas wells. Mr. Combrink incorporated LINKS on November 12, 1992, and has at all relevant times through November of 1996 owned all outstanding shares. LINKS, also a subchapter C corporation, was formed with the intention of opening and operating a golf course. During the 1990's, Mr. Combrink received various amounts from COST which were treated as loans from the corporation to Mr. Combrink. In two instances, promissory notes payable to COST were signed by Mr. Combrink. A note in the amount of $56,404.47 was signed on December 31, 1992, and a note for $17,000.00 was signed on December 31, 1993. Additional loan amounts were reflected on the corporate records as accounts receivable due from Mr. Combrink. As of May 25, 1995, the balance of COST's accounts receivable from shareholders was $11,000.00. Thereafter, during 1995 and 1996, this balance was increased as a result of transactions taking one of two forms. First, in 1995, COST repaid sums owed to third parties by Mr. Combrink in his personal capacity, as follows: Date Amount May 26, 1995 $16,362.98 August 31, 1995 15,729.17 December 20, 1995 11,228.64 December 29, 1995 1,102.37 Total $44,423.16 The August 31, 1995, payment was made in satisfaction of amounts owed by Mr. Combrink to a loan broker who had assisted in finding a lender to finance LINK's operations. The December 20, 1995, payment repaid sums owed by Mr. Combrink to a creditor for equipment used exclusively by LINKS. (The record does not reflect the purpose or recipient of the remaining two payments.) The second type of transaction recorded on COST's books as accounts receivable from Mr. Combrink took the form of payments made directly to LINKS in 1996. These payments are set forth below: Date Amount April 29, 1996 $1,000.00 May 6, 1996 2,000.00 May 15, 1996 3,500.00 June 3, 1996 15,000.00 June 5, 1996 23,805.57 Total $45,305.57 The foregoing nine accounts receivable transactions, totaling $89,728.73, were consistently treated by Mr....
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