                          T.C. Memo. 1998-299



                      UNITED STATES TAX COURT



          RICHARD J. AND CAROL C. SPERA, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 130-97.                         Filed August 18, 1998.




     James J. Mahon, for petitioners.

     Monica E. Koch and Andrew Mandell, for respondent.




                  SUPPLEMENTAL MEMORANDUM OPINION

   LARO, Judge:   The dispute herein involves the Rule 155

computation mandated by the Court's Memorandum Opinion filed as

Spera v. Commissioner, T.C. Memo. 1998-225.       Respondent submitted

     *
       This opinion supplements our Memorandum Opinion in Spera
v. Commissioner, T.C. Memo. 1998-225.
                                 - 2 -


a computation for entry of decision for petitioners' 1989 through

1992 taxable years.   Petitioners submitted a computation for 1990

that is different than respondent's computation.         We must decide

whether constructive distributions received by petitioners in

1990 are nontaxable to them as a return of their basis in a loan

that they made to the distributing C corporation.         We hold they

are not.   Section references are to the Internal Revenue Code in

effect for the years in issue.    Rule references are to the Tax

Court Rules of Practice and Procedure.         Petitioners resided in

Northport, New York, when they petitioned the Court.

     In Spera v. Commissioner, supra, we held that petitioners

received constructive distributions of $27,941, $160,780,

$53,001, and $15,585 in 1989 through 1992, respectively, on

account of certain building additions that were made by their

wholly owned C corporation.   We stated that the taxability of

these distributions was to be determined by the parties in a Rule

155 computation by applying the rules of section 301(c).         Id.

We stated that these rules provide that distributions are

dividends to the extent of the distributing corporation's

earnings and profits, that the amounts received in excess of

earnings and profits are a nontaxable return of capital to the

extent of the recipient shareholder's basis in his or her stock

in the corporation, and that any excess is treated as a gain from

the sale or exchange of property.        Id.
                               - 3 -


     With respect to the 1990 constructive distributions totaling

$162,515 (the $160,780 of constructive distributions mentioned

above, plus $1,735 of constructive distributions conceded by

petitioners to have been received during that year), the parties

agree that none of these distributions is a dividend under

section 301(c)(1), and that $50,000 is a nontaxable return of

capital under section 301(c)(2) on account of petitioners'

$50,000 basis in the stock of the distributing corporation.    The

parties disagree on the taxability of the remaining distributions

totaling $112,515.   According to respondent's computation, this

amount is taxed to petitioners as a capital gain.   According to

petitioners' computation, $68,115 is a capital gain and $44,400

is a return of their basis in a loan that they made to the

distributing C corporation.

     We agree with respondent's computation.   As stated in

Spera v. Commissioner, supra, the taxability of constructive

distributions rests on an application of section 301(c), which

provides:

     SEC. 301(c). Amount Taxable.--In the case of a
     distribution * * *--

          (1) Amount constituting dividend.--The portion of
     the distribution which is a dividend * * * shall be
     included in gross income.

          (2) Amount applied against basis.--That portion
     of the distribution which is not a dividend shall be
     applied against and reduce the adjusted basis of the
     stock.
                                - 4 -


          (3)    Amount in excess of basis.--

               (A) * * * that portion of the
          distribution which is not a dividend, to the
          extent that it exceeds the adjusted basis of
          the stock, shall be treated as gain from the
          sale or exchange of property.

Contrary to petitioners' computation, nothing in these rules

allows a recipient shareholder to reduce his or her basis in debt

of the recipient C corporation to the shareholder by the amount

of the distribution.    Cf. sec. 1367(b)(2) (provides for an

adjustment in the basis of any debt of an S corporation to a

shareholder).    We decline petitioners' invitation to formulate

such a rule.    To the extent that petitioners are impliedly

asserting that the $44,000 was a loan repayment as a factual

matter, such an assertion is contrary to our finding in the

original opinion that the sums in question were constructive

distributions in respect of petitioners' stock in the

corporation.    Of course, Rule 155 is not a vehicle for

reconsideration of that finding.    See Rule 155(c); see also

Bankers' Pocahontas Coal Co. v. Burnet, 287 U.S. 308 (1932);

Cloes v. Commissioner, 79 T.C. 933 (1982).

     Accordingly,

                                             Decision will be entered

                                        in accordance with

                                        respondent’s computation.
