                        T.C. Memo. 2000-162



                      UNITED STATES TAX COURT



                 ANGELO F. DEJOY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10893-98.                       Filed May 18, 2000.



     Angelo F. DeJoy, pro se.

     Thomas J. Kerrigan, for respondent.


             MEMORANDUM FINDINGS OF FACT AND OPINION


     SWIFT, Judge:   Respondent determined deficiencies in

petitioner's Federal income taxes, additions to tax, and

accuracy-related penalties as follows:
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                                                        Accuracy-Related
                               Additions To Tax              Penalty
     Year    Deficiency   Sec. 6651(a)(1)   Sec. 6654     Sec. 6662(a)
     1989     $36,815         $9,204          $2,492         $7,363
     1990      21,990          5,498           1,447          4,398
     1991      15,062          3,766             867          3,012
     1992      22,471          5,618             979          4,494
     1993      26,804          5,361           1,122          5,361


     After settlement of a number of issues, the issues for

decision involve a claimed capital loss for 1990 of $8,275, a

claimed capital loss for 1991 of $47,391, and the late filing

additions to tax under section 6651(a)(1) for each of the years

shown in the schedule above.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.


                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

     At the time the petition was filed, petitioner resided in

Melville, New York.   From 1987 to 1989, petitioner was the sole

shareholder of three S corporations, namely, Papa Angelos Home

and Car Audio Inc. of Coram, Inc. (Car Audio), Papa Angelos

Discount Car Stereo, Inc. (Car Stereo), and Mobile Audio

Distributors, Inc. (Audio Distributors).

     In 1987 and 1988, a downturn in the economy occurred and

affected the automobile accessory parts industry in which
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petitioner’s corporations were engaged.   Car Audio apparently

operated until 1988 when it ceased operations.   Car Stereo

apparently went into involuntary bankruptcy in 1989, and

apparently by 1989, Audio Distributors had gone out of business.

     In August of 1990, petitioner sold a parcel of real estate

that he owned personally located in Bayshore, New York, and

petitioner used $8,275 of the sales proceeds to pay to the State

of New York an outstanding sales tax liability of Car Stereo.

The State of New York had previously obtained a judgment against

petitioner personally with regard to the outstanding sales tax

liability of Car Stereo and had filed a judgment lien against the

above real property.   Upon petitioner’s payment of the $8,275 to

New York State, the lien on the property was released, and

petitioner’s personal liability to the State with respect to the

outstanding New York State sales tax liability of Car Stereo was

paid off.

     In early 1991, petitioner paid the State of New York a total

of $23,730 in outstanding sales tax liabilities of Car Stereo and

of Car Audio.

     Also in 1991, petitioner paid the United States a total of

approximately $23,662 in section 6672 responsible officer

penalties that had been assessed by respondent against petitioner

relating to unpaid trust fund Federal employment taxes owed by

petitioner’s S corporations.
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     For 1988 and subsequent years, the record contains little

reliable evidence as to petitioner's tax bases in, and the value

of, petitioner’s stock of each of the S corporations.

     As of the end of 1987, petitioner apparently had received

from Car Stereo and/or the other S corporations $148,574 in the

form of a corporate loan.   The evidence is unclear as to whether

and, if so, to what extent petitioner ever repaid this purported

loan.

     In the late 1980's or early 1990's, the accountant who

maintained petitioner’s books and records and who was to prepare

Federal income tax returns for petitioner personally and for

petitioner’s S corporations closed his accounting practice and

disappeared.   Many of the financial records relating to

petitioner’s individual Federal income tax liabilities and

relating to petitioner’s S corporations were never recovered from

the accountant.   Also, during these years, petitioner experienced

significant personal and family problems that interfered with

petitioner’s ability to timely file his Federal income tax

returns.

     Petitioner untimely filed his individual Federal income tax

returns for 1989 through 1993.

     On his 1990 individual Federal income tax return, petitioner

did not reflect the $8,275 that he paid to the State of New York

relating to the outstanding sales tax liability of Car Stereo.
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Petitioner now claims that this $8,275 should be allowed to him

as an additional capital loss for 1990.

     On his 1991 individual Federal income tax return, petitioner

did not reflect the $47,391 that he paid to New York State and to

the United States relating to the sales and employment tax

liabilities of his S corporations.    Petitioner now claims that

this $47,391 should be allowed to him as an additional capital

loss for 1991.

     The parties now agree that the payments of $8,275 in 1990

and the total of $47,391 in 1991 that petitioner made regarding

the delinquent sales and employment tax liabilities of his

S corporations represent additional capital contributions to

petitioner’s S corporations and an increase in petitioner's bases

in his stock of the S corporations.    Respondent, however,

disallows the claimed capital losses relating thereto on the

grounds that petitioner has established neither his bases in nor

the worthlessness of his stock in the S corporations.    Respondent

also has imposed the additions to tax under sections 6651(a)(1),

6654, and 6662(a) with respect to which petitioner contests only

the additions to tax under section 6651(a)(1) for late filing his

tax returns.


                             OPINION

     Payments made by shareholders on behalf of corporations

generally increase the shareholders’ stock bases in the
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corporations.   See sec. 1012.   Distributions by S corporations

without accumulated earnings and profits, on the other hand,

decrease the shareholders’ bases in their stock in the

corporations.   See sec. 1367(a)(2)(A).

     Under section 165, taxpayers may take deductions for losses

sustained in sales or exchanges of capital assets and for

worthless securities.   See sec. 165(a), (f), and (g).    Such

losses and deductions are limited, however, to the extent

prescribed by the Code.   Taxpayers other than corporations may

offset capital gains by capital losses.     See sec. 1211(b).

Capital losses in a given year are limited by the amount of the

capital gains plus $3,000.    See id.    In addition, taxpayers are

allowed flow-through losses and deductions in connection with S

corporations only to the extent of their adjusted bases in the S

corporations.   Individual taxpayers may carry over excess capital

losses to subsequent years.   See sec. 1212(b).

     In this case, the evidence does not adequately establish

petitioner’s tax bases in, or the worthlessness of, petitioner’s

stock in the S corporations to entitle petitioner to the losses

claimed.   Although the payments petitioner made on behalf of his

S corporations would increase petitioner’s bases in the stock of

the S corporations, petitioner has not adequately established his

bases in the stock.   For example, petitioner has not established

whether the $148,574 purported corporate loan to petitioner was
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ever repaid and whether or not that loan should be treated in

substance as a corporate distribution that would have reduced

petitioner’s stock bases to zero.

     Further, aside from his bases in the stock of the S

corporations, petitioner has not established the worthlessness of

such stock.   The mere fact that petitioner’s S corporations had

ceased operating and owed outstanding sales and employment tax

liabilities does not necessarily establish the worthlessness of

the related corporate stock.   We conclude that petitioner is not

entitled to the claimed capital losses for 1990 and 1991.

     With regard to the section 6651 late filing additions to

tax, we find petitioner’s testimony credible and persuasive.

Under the facts of this case, the disappearance of the accounting

firm with many of petitioner’s and the S corporations’ business

and financial records and petitioner’s significant personal and

family problems constitute reasonable cause for the untimely

filing of petitioner’s Federal income tax returns for the years

in issue.   We do not sustain respondent’s imposition of the

section 6651 late filing addition to tax.

     To reflect the foregoing,


                                 Decision will be entered

                          under Rule 155.
