Hitchins v. Commissioner
United States Tax Court
103 T.C. 711 (1994)
- Written by Eric Miller, JD
Facts
Howard and Esther Hitchins (plaintiffs) owned the majority of stock in Champaign Computer Company (CCC), of which Howard was the founder and president. The Hitchinses entered an agreement with Scot and Barbara Miller to develop a chemical database. The agreement provided that CCC would handle the development but that a new company would be formed to own the finished database. Accordingly, ChemMultiBase Company, Inc. (CMB) was formed as an S corporation in which the Hitchinses and the Millers each owned 50 percent of the stock. It was agreed that CMB would reimburse CCC for expenses. During the development process, Howard loaned $34,000 to CCC to cover operating expenses. No portion of this amount was paid to CMB. Upon completion of the project, CCC billed CMB for $65,645.39. This was paid, with $34,000 of the total being considered satisfaction of the loan from Howard to CCC. CMB operated at a loss. The Hitchinses deducted their share of the losses, including the $34,000, as part of their basis in CMB. The Commissioner of Internal Revenue (the commissioner) (defendant) disallowed the inclusion of this amount—a determination challenged by the Hitchinses in the United States Tax Court.
Rule of Law
Issue
Holding and Reasoning (Tannenwald, J.)
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