Richard L. and Kelly D. Robson v. Commissioner ( 2000 )


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    T.C. Memo. 2000-201
    UNITED STATES TAX COURT
    RICHARD L. AND KELLY D. ROBSON, Petitioners v.
    COMMISSIONER OF INTERNAL REVENUE, Respondent
    Docket No. 15716-97.                          Filed June 29, 2000.
    William D. Sutter, Jr., for petitioners.
    Henry N. Carriger, for respondent.
    MEMORANDUM FINDINGS OF FACT AND OPINION
    MARVEL, Judge:   Respondent determined a deficiency of
    $14,782 in petitioners’ Federal income tax for the taxable year
    1993.     The sole issue for decision1 is whether petitioners
    1
    The only other issue raised by the notice of deficiency is
    computational.
    - 2 -
    realized a capital gain during 1993 as a result of a liquidating
    distribution under section 331(a)(1).2
    FINDINGS OF FACT
    Some of the facts have been stipulated and are so found.
    The stipulation of facts is incorporated herein by this
    reference.   Petitioners resided in York, Nebraska, when they
    filed their petition in this case.     References to petitioner are
    to Richard L. Robson.
    Petitioner has worked in the insurance industry since his
    graduation from college in 1963 with a degree in education.     On
    or about March 4, 1980, petitioner and James Klute (Klute)
    decided to purchase all of the stock of Mid-Nebraska Insurors,
    Inc. (Mid-Nebraska), a local insurance agency.    To effect that
    purchase, Mid-Nebraska borrowed $33,175 from York State Bank and
    Trust Co. (York).   Mid-Nebraska then lent the proceeds to
    petitioner and Klute, and they used them to purchase the stock of
    Mid-Nebraska.   To evidence Mid-Nebraska’s loan to them,
    petitioner and Klute signed a certificate of indebtedness (note)
    in which they jointly and severally promised to pay Mid-Nebraska
    2
    Unless otherwise indicated, all section references are to
    the Internal Revenue Code in effect for the year in issue, and
    all Rule references are to the Tax Court Rules of Practice and
    Procedure. For convenience, all monetary amounts are rounded to
    the nearest dollar.
    - 3 -
    $33,175 with interest at 15 percent per year on the unpaid
    balance.    Immediately after the purchase, petitioner and Klute
    each owned 50 percent of the stock of Mid-Nebraska.
    Mid-Nebraska struggled financially.    It borrowed additional
    funds from York, from Klute’s spouse (Mrs. Klute), and from his
    company, Klute Land & Cattle Co., Inc. (Klute Land & Cattle).
    Klute eventually decided to terminate his relationship with Mid-
    Nebraska.    Consequently, on or about February 17, 1983, Mid-
    Nebraska redeemed all of Klute’s stock, he resigned all of his
    positions with that corporation, and it released him from any
    further liability on the note and any debts or notes Mid-Nebraska
    owed York.    Mid-Nebraska also agreed to pay $22,000 to Mrs. Klute
    and $23,000 to Klute Land & Cattle in payment of the money it
    owed them.    Mid-Nebraska paid the $22,000 to Mrs. Klute.   Of the
    $23,000 owed to Klute Land & Cattle, Mid-Nebraska paid Klute
    $8,000 on or about February 17, 1983, and gave him a note for the
    balance due, payable in three annual installments of $5,000 each
    commencing March 1, 1984.    Klute ultimately received only one
    $5,000 payment.
    After the redemption of Klute’s stock, petitioner was Mid-
    Nebraska’s sole shareholder, and he alone was responsible for
    repayment of the $33,175 loan from Mid-Nebraska.    Neither Mid-
    Nebraska’s payments to Klute, Mrs. Klute, and Klute Land & Cattle
    nor its failure to pay the sums owed Klute affected petitioner’s
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    basis in Mid-Nebraska.   He was not liable for, nor was he
    required to make, any of those payments.
    Mid-Nebraska continued to struggle financially.   Petitioner
    borrowed money from his spouse and against his life insurance and
    his 401(k) plan to put into Mid-Nebraska.   It is not clear,
    however, how much additional money petitioner ultimately put into
    the business, or whether Mid-Nebraska’s bookkeepers and
    accountants treated the money as capital contributions or loans
    to the corporation on its books and records, or whether Mid-
    Nebraska repaid to petitioner any of that money before September
    8, 1992.
    During 1988 or 1989, Dean Sack (Sack), York’s president,
    chairman of the board, and principal owner, advised petitioners
    to purchase the office space in the condominium building in which
    Mid-Nebraska had located its offices (office condominium).     To
    effect the purchase of the office condominium and to satisfy
    certain bank lending policies, York lent Mid-Nebraska $16,000.
    Mid-Nebraska then lent the money to petitioners, and they used it
    to make a downpayment toward the purchase of the office
    condominium.   Petitioners borrowed the balance of the $89,000
    purchase price of the office condominium from York, and they
    agreed to make monthly payments toward repayment of that loan.
    Petitioners purchased the office condominium in their own names,
    and they considered it to be a personal asset.   From the time
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    Sack approached petitioners about the purchase of the office
    condominium through at least some time after the audit of their
    1993 return, petitioner did not understand the nature of or
    rationale for the financial arrangements made regarding that
    purchase.
    Mid-Nebraska also periodically borrowed money from York for
    operating expenses.   In August 1992, petitioner asked York to
    cover a $19,000 overdraft to USF&G Insurance Co.   York refused.
    Instead, Sack informed petitioner that York would take over Mid-
    Nebraska’s business, but York would allow petitioner to operate
    the insurance business as an employee of the bank.   During the
    preliminary discussion of the terms of York’s acquisition of Mid-
    Nebraska’s business, Roger Sack, Sack’s son, told petitioner that
    York would fire petitioner if he attempted to retain an attorney
    to advise him about the transaction.   Sack determined all of the
    terms of the acquisition, and petitioner had no voice in the
    matter.
    On August 17, 1992, Sack, on behalf of York, and petitioner
    signed a letter of intent.   The letter of intent stated, among
    other things, that “It is hereby acknowledged that Mid-Nebraska
    Insurors is deficient in working capital and proposes to sell
    their corporation, including all assets, to the York State Bank
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    for $30,000, and the cancellation of their note payable to the
    York State Bank for approximately $97,000.”   The letter of intent
    further stated, among other things:
    This is a temporary agreement made subject to further
    details but with the understanding that Dick Robson has
    the option to buy the corporation back from the bank at
    any time for the amount the bank has paid for it plus
    earnings of 1% per month for the time they have had
    their money invested in the corporation.
    In connection with the acquisition, York wrote a letter
    dated August 31, 1992, to the State of Nebraska Department of
    Banking and Finance (bank regulators) seeking their approval for
    York’s purchase of Mid-Nebraska’s business.   In that letter, York
    represented that “the Bank will acquire the business and certain
    fixed assets from the present corporation for an amount not to
    exceed one and one-half times the gross annual commissions.”    The
    bank regulators expressed approval for the transaction in a
    letter to York dated September 3, 1992, in which they cautioned
    York that it could not purchase the stock of Mid-Nebraska.
    On September 8, 1992, Sack, on behalf of York, and
    petitioner, on behalf of Mid-Nebraska, executed an agreement
    regarding the “Acquisition of Mid-Nebraska Insuror’s fixed assets
    and good will” (acquisition agreement).   The acquisition
    agreement states, among other things:
    York State Bank and Trust Company will pay the seller
    an amount equal to the total of the following, not to
    exceed $167,000:
    Bank overdraft on closing day;
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    Principal plus accrued interest on YSB term loan;
    Payoff amount of vehicle loan;
    Accounts Receivable;
    An additional amount equal to the excess of Accounts
    Payable over Accounts Receivable.
    At the option of York State Bank and Trust Company,
    seller will assign all rights to leases for Fixed
    Assets (Office F and F), and execute a Bill of Sale for
    Furniture and Fixtures.
    Seller will assign all rights to Agency Contracts with
    insurance carriers.
    *      *       *        *       *       *       *
    All future commission income of the seller will be the
    property of the buyer with the exception of Life
    Insurance Commission and/or Renewals, which shall
    remain the property of the seller. * * *
    Dick Robson agrees to enter into an Agreement for
    Employment with York State Bank and Trust Company,
    d/b/a Mid-Nebraska Insurors. Included in such
    Agreement shall be a non-competition clause covering a
    period of two years after termination of employment for
    any reason, whether voluntary or otherwise. * * *
    York State Bank and Trust Company agrees with the
    Seller that for a period of three years an option will
    be granted the Seller to repurchase the assets covered
    under this agreement for a total equal to the
    unrecovered investment in the original purchase price
    plus a sum equal to 12% per annum for each year or part
    thereof in which the York State Bank and Trust Company
    has any unrecovered investment. * * *
    From September 8, 1992, until petitioner repurchased the
    insurance agency in 1994, York operated an insurance business
    under the name “Mid-Nebraska Insurors”.    When York acquired that
    business, Mid-Nebraska owed liabilities of over $158,890, of
    which it owed York $151,890 for loans and an overdraft in the
    corporate bank account.   Following York’s acquisition of Mid-
    - 8 -
    Nebraska’s business, York wrote off the $151,890 and paid $7,000
    of Mid-Nebraska’s accounts payable, for a total purchase price of
    $158,890.
    On April 22, 1993, petitioner, on behalf of Mid-Nebraska,
    and Sack, on behalf of York, executed an addendum to the
    acquisition agreement purportedly changing the allocation of the
    sale price on assets other than fixed assets as follows:
    Item                     Amount
    Employment agreements          $16,372
    Customer list                  130,978
    Noncompete                       1,489
    Total                        148,839
    Petitioner signed and filed Mid-Nebraska’s Form 1120, U.S.
    Corporation Income Tax Return, for the year ended December 31,
    1992 (1992 return), on October 15, 1993.   The 1992 return
    reported, among other things, a capital gain of $125,645 and
    ordinary gain of $13,760 from the sale of property consisting of
    “vehicle, accts receivable, non-compete, employment agreements,
    customer list, goodwill”.    Form 4797, Sales of Business Property,
    filed with the 1992 return showed the following calculation of
    the capital gain and ordinary gain:
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    Gross sale price                                       $158,890
    Less:
    Cost or other basis
    plus expense of sale                  $33,245
    Less depreciation                       13,760
    Adjusted basis                                               19,485
    Total gain from sale of property                           139,405
    Less:
    Ordinary gain (depreciation claimed
    on section 1245 property)                            13,760
    Capital gain                                            125,645
    Form 8594, Asset Acquisition Statement, filed with the 1992
    return showed the allocation of the total $158,890 sale price as
    follows:
    Aggregate fair        Allocation of
    Assets           market value          sale price
    Class I (Cash)         $2,000                  $2,000
    Class II                 --                      --
    Class III             184,251                 156,890
    Total                186,251                 158,890
    Form 8594 also showed a breakdown of the intangible amortizable
    class III assets as follows:
    Allocation of
    Assets          Fair market value      sale price
    Employment
    agreements            $20,000               $16,372
    Customer list          155,000               130,978
    Noncompete              1,200                 1,489
    Total                176,200               148,839
    Thus, $8,051 of the class III assets is not classified on the
    Form 8594.
    Schedule L, Balance Sheet, filed with the 1992 return
    reflected the following assets, liabilities, and stockholders’
    equity at the beginning and end of that year:
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    Item                    Beginning of year      End of year
    Assets:
    Cash                                  $295              --
    Trade notes and
    accounts receivable              10,034                --
    Loans to stockholders            131,940             $111,484
    Buildings & other
    depreciable assets less
    accumulated depreciation        20,383                  816
    Other assets (goodwill)           13,700                --
    Total assets                    176,352              112,300
    Liabilities and
    stockholders’ equity:
    Accounts payable                  35,653               28,898
    Loans from stockholders           19,500                --
    Mortgages, notes, bonds
    payable in 1 year or more       137,250                --
    Capital stock:
    Common stock                    10,000               10,000
    Retained earnings--
    Unappropriated                  (26,051)              73,402
    Total liabilities and
    stockholders’ equity           176,352              112,300
    Petitioner signed and filed Mid-Nebraska’s Form 1120, U.S.
    Corporation Income Tax Return, for the year ended December 31,
    1993 (1993 return), on or about September 15, 1994.   The 1993
    return indicated that it was a final return.
    A Schedule L, Balance Sheet, filed with the 1993 return
    reflected the following assets, liabilities, and stockholders’
    equity at the beginning and end of the year:
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    Item                     Beginning of year      End of year
    Assets:
    Loans to stockholders                $111,484            $111,484
    Buildings & other
    depreciable assets less
    accumulated depreciation                816                 816
    Total assets                        112,300             112,300
    Liabilities and
    stockholders’ equity:
    Accounts payable                       28,898              28,898
    Capital stock:
    Common stock                         10,000              10,000
    Retained earnings--
    Unappropriated                       73,402              73,402
    Total liabilities and
    stockholders’ equity                112,300             112,300
    The State of Nebraska statutorily dissolved Mid-Nebraska on
    or about April 16, 1993, for failure to pay fees and occupation
    taxes.    When Mid-Nebraska was dissolved, petitioner was its
    president and sole shareholder.
    When Mid-Nebraska ceased business, its books showed the
    following asset accounts and balances:
    Account No.              Description                     Balance
    106               Loan shareholder                     $1,800
    107               Robson building account              16,200
    111               Personal insurance                    7,876
    112               Accounts receivable-Robson           52,432
    113               Receivable Shareholder               33,175
    Total                                               111,483
    Account No. 113 reflected the original amount that petitioner and
    Klute owed Mid-Nebraska for the purchase of the stock of Mid-
    Nebraska.       Hereinafter, accounts Nos. 106-107 and 111-113
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    collectively will be referred to as the loans to shareholder
    accounts.
    On audit respondent determined that petitioners had
    unreported income from a capital gain of $50,227 they received as
    a result of the liquidation of Mid-Nebraska.   Respondent
    calculated that net capital gain as follows:
    Assets per balance sheet at dissolution:
    Loans to shareholder                    $111,484
    Net depreciable assets                       816
    Total assets                                         $112,300
    Less liabilities per balance sheet
    at dissolution:
    Accounts payable                                      28,898
    Net liquidating dividend                             83,402
    Less basis in stock                                     33,175
    Capital gain from liquidating
    distribution                                         50,227
    OPINION
    Amounts distributed to a shareholder in complete liquidation
    of a corporation are treated as full payment in exchange for the
    stock of the corporation.   See sec. 331(a)(1).   The gain or loss
    to a shareholder from a liquidating distribution is determined
    under section 1001 by subtracting the cost or other basis of the
    stock from the amount of the distribution.   See sec. 331(c); sec.
    1.331-1(b), Income Tax Regs.   Where a corporation cancels a debt
    owed to it by a shareholder in connection with a complete
    liquidation, the amount of the debt is treated as a distribution
    under section 331(a)(1).    See Alexander v. Commissioner, 
    61 T.C. 278
    , 289 (1973) (citing Weisberger v. Commissioner, 
    29 B.T.A. 83
    - 13 -
    (1933)); see also Merriam v. Commissioner, 
    T.C. Memo. 1995-432
    ,
    affd. without published opinion 
    107 F.3d 877
     (9th Cir. 1997);
    Levy v. Commissioner, 
    T.C. Memo. 1960-22
     (corporation made a de
    facto distribution to its sole shareholder relating to the
    complete liquidation of the corporation in the amount he owed the
    corporation for advances it had made to him).
    Petitioners deny that petitioner received any liquidating
    distribution from Mid-Nebraska.    Thus, they contend, he realized
    no capital gain during 1993 relating to the dissolution of that
    corporation.   Respondent, on the other hand, contends that the
    statutory dissolution of Mid-Nebraska caused a de facto
    liquidation of that corporation’s assets.    Thus, respondent
    asserts, petitioner received a net liquidating distribution
    during 1993 from Mid-Nebraska of $83,402.    Respondent maintains
    that, after subtracting his basis in the Mid-Nebraska stock of
    $33,175, petitioner realized a capital gain of $50,227 relating
    to the dissolution of that corporation.
    Petitioners admit that when Mid-Nebraska ceased business,
    the corporate books showed balances in the loans to shareholder
    accounts totaling $111,483 and that the balance sheet filed with
    Mid-Nebraska’s final return showed as an asset loans to
    shareholder totaling $111,484.    Nevertheless, they insist that
    Mid-Nebraska never lent any money to them or paid any of their
    personal expenses.   Rather, they claim, the loans to shareholder
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    accounts reflected on the corporate books when York acquired Mid-
    Nebraska’s business must have been made in error.
    From their briefs, it appears that petitioners are under the
    mistaken belief that respondent has the burden of proof in the
    instant case.     Generally, however, the Commissioner’s
    determinations are presumed correct, and taxpayers have the
    burden of proving that the Commissioner's determinations are
    erroneous.3    See Rule 142(a); Welch v. Helvering, 
    290 U.S. 111
    ,
    115 (1933); Page v. Commissioner, 
    823 F.2d 1263
    , 1271 (8th Cir.
    1987), affg. in part and dismissing in part 
    T.C. Memo. 1986-275
    .
    Other than their descriptive titles, the record contains no
    evidence explaining the nature of the loans to shareholder
    accounts.     Furthermore, evidence relating to the accuracy of the
    loans to shareholder accounts consisted solely of petitioner’s
    testimony.    We are not required to accept the self-serving
    testimony of interested parties, however, particularly in the
    absence of persuasive corroborating evidence.     See Day v.
    Commissioner, 
    975 F.2d 534
    , 538 (8th Cir. 1992), affg. in part,
    revg. in part and remanding 
    T.C. Memo. 1991-140
    ; Niedringhaus v.
    Commissioner, 
    99 T.C. 202
    , 212 (1992); Tokarski v. Commissioner,
    
    87 T.C. 74
    , 77 (1986).
    3
    The burden of proof provisions of sec. 7491 do not apply
    here because the examination in this case began before July 22,
    1998. See Internal Revenue Service Restructuring & Reform Act of
    1998, Pub. L. 105-206, sec. 3001(c), 
    112 Stat. 685
    , 724.
    - 15 -
    It is not enough for petitioners to claim that the entries
    recording loans to shareholder must have been made in error.     The
    record makes it abundantly clear that petitioner was ignorant
    about financial and accounting concepts when he purchased Mid-
    Nebraska’s stock and continuing at least through   the audit of
    petitioners’ 1993 return.   It is also obvious that petitioner
    made no effort to acquaint himself with Mid-Nebraska’s financial
    records or the accounting entries made on those records or the
    data reported on the corporate tax returns.
    Petitioner testified that he did not know of what the loans
    to shareholder accounts consisted and that he was not even aware
    that Mid-Nebraska’s books reflected loans to shareholder until
    after York took over the corporation’s business.   He testified
    further, however, that he did not understand the corporate books
    and relied totally on in-house bookkeepers to keep the corporate
    books and on outside accountants to prepare the corporate tax
    returns.   He stated additionally that when he reviewed the
    corporate books, he checked only for the amount of premiums he
    had written each month.
    Petitioner failed to present any testimony from individuals
    involved in preparing Mid-Nebraska’s books and tax returns who
    could explain the nature of the loans to shareholder accounts
    included on Mid-Nebraska’s books or otherwise establish that the
    accounting entries were made in error.   The failure of a party to
    - 16 -
    introduce evidence that is within his or her control gives rise
    to a presumption that the evidence, if provided, would be
    unfavorable to the party who has control over the evidence.    See
    O'Dwyer v. Commissioner, 
    266 F.2d 575
    , 584 (4th Cir. 1959), affg.
    
    28 T.C. 698
     (1957); Cluck v. Commissioner, 
    105 T.C. 324
    , 338
    (1995); Wichita Terminal Elevator Co. v. Commissioner, 
    6 T.C. 1158
    , 1165 (1946), affd. 
    162 F.2d 513
     (10th Cir. 1947).
    Accordingly, we find that petitioners did not establish
    satisfactorily that the loans to shareholder accounts depicted on
    Mid-Nebraska’s books when it ceased its business resulted from
    erroneous bookkeeping entries or constituted compensation.     See
    Hash v. Commissioner, 
    273 F.2d 248
    , 250-251 (4th Cir. 1959),
    affg. 
    T.C. Memo. 1959-96
    ; Allen v. Commissioner, 
    117 F.2d 364
    ,
    368 (1st Cir. 1941), affg. a Memorandum Opinion of this Court;
    see also Bartel v. Commissioner, 
    54 T.C. 25
     (1970).
    Petitioners contend additionally, in essence, that even if
    the bookkeeping entries on Mid-Nebraska’s books showing loans to
    petitioner were accurate, the loans to shareholder accounts no
    longer existed in 1993 when the State of Nebraska statutorily
    dissolved Mid-Nebraska.   According to petitioners, loans to
    shareholders constitute accounts receivable, and York acquired
    all of Mid-Nebraska’s accounts receivable during 1992; therefore,
    petitioners contend, Mid-Nebraska had no asset consisting of
    loans to shareholders to distribute to petitioner when the State
    - 17 -
    of Nebraska statutorily dissolved Mid-Nebraska.    Respondent,
    however, contends that York acquired only Mid-Nebraska’s
    marketable assets, i.e., its customer list and accounts
    receivable, and that those assets did not include the accounts.
    According to respondent, the only Mid-Nebraska receivables York
    acquired consisted of money owed to Mid-Nebraska for insurance
    premiums.
    Petitioners rely on the statement in the letter of intent
    that Mid-Nebraska “proposes to sell their corporation, including
    all assets, to York” as proof that York acquired the loans to
    shareholder accounts reflected on Mid-Nebraska’s books when it
    took over Mid-Nebraska’s business.     That document, however,
    specifically stated that its terms were temporary and subject to
    further detail.   Therefore, we do not find it conclusive proof
    that York intended to acquire, or actually acquired, the loans to
    shareholder accounts when it acquired Mid-Nebraska’s business.
    Petitioners also rely on the acquisition agreement as proof
    that York acquired the loans to shareholder accounts.     We find
    that document ambiguous, however.    The acquisition agreement
    stated that York was acquiring “Mid-Nebraska Insuror’s fixed
    assets and good will.”   We are aware that the agreement stated
    further that the purchase price of the acquisition would be an
    amount not exceeding $167,000 calculated on the total of
    specified items of which “Accounts Receivable” is included.      The
    - 18 -
    agreement, however, did not define what items constituted
    accounts receivable or otherwise indicate whether the loans to
    shareholder accounts were included or excluded.     Petitioners
    contend that the term “accounts receivable” includes loans to
    shareholders.    We, however, find the meaning unclear.
    Black’s Law Dictionary (7th ed. 1999) defines the term
    “account receivable” to mean “An account reflecting a balance
    owed by a debtor; a debt owed by a customer to an enterprise for
    goods or services.”    Kohler’s Dictionary for Accountants (6th ed.
    1983) further defines the term to mean “A claim against a debtor,
    generally on open account, its application usually limited to
    uncollected amounts of completed sale of goods and services;
    distinguished from deposits, accruals, and other items not
    arising out of everyday transactions.”      (Emphasis added.)   One
    accounting textbook explains that
    The term “receivables” refers to amounts due from
    individuals and other companies. Receivables are
    claims that are expected to be collected in cash.
    Receivables are frequently classified as (1) accounts,
    (2) notes, and (3) other.
    Accounts receivable are amounts owed by customers
    on account. They result from the sale of goods and
    services. * * *
    *       *         *       *        *       *      *
    Other receivables include nontrade receivables
    such as interest receivable, loans to company officers,
    advances to employees, and income taxes refundable.
    These are unusual; therefore, they are generally
    - 19 -
    classified and reported as separate items in the
    balance sheet. [Weygandt et al., Accounting Principles
    324 (3d ed. 1993); emphasis added.]
    See also Gehl Co. v. Commissioner, 
    795 F.2d 1324
    , 1330 (7th Cir.
    1986) (“The term accounts receivable normally refers to an amount
    that is due in return for goods or services supplied.” (Emphasis
    added.)), affg. in part and setting aside in part on another
    ground 
    T.C. Memo. 1984-667
    .   The record does not show whether
    Sack intended the term “accounts receivable” in the acquisition
    agreement to encompass all accounts which are broadly classified
    as receivables or to be limited to its more common application of
    a trade receivable.
    Petitioner’s testimony that York acquired all of Mid-
    Nebraska’s assets was premised solely on his own understanding of
    the transaction.   However, he had absolutely no control over what
    assets York wanted and acquired.   There is no evidence that
    either Sack or his son specifically identified which of Mid-
    Nebraska’s assets York wanted to acquire when they drafted the
    letter of intent or the acquisition agreement.   Petitioner’s
    ignorance of financial and accounting concepts renders his
    testimony alone insufficient to establish that York procured the
    loans to shareholder accounts when it acquired Mid-Nebraska’s
    business, and the documents on which petitioners rely are
    inconclusive.
    - 20 -
    As further support for respondent’s position that York did
    not acquire the loans to shareholder accounts, we note that
    “Loans to stockholder” of $111,484 are listed as an asset at
    yearend on both the Schedules L filed with Mid-Nebraska’s tax
    returns for 1992 and 1993.   Statements on a Federal tax return
    are admissions under rule 801(d)(2) of the Federal Rules of
    Evidence and will not be overcome without cogent evidence that
    they are wrong.   See, e.g., Waring v. Commissioner, 
    412 F.2d 800
    ,
    801 (3d Cir. 1969) (“The valuation [of license agreement] given
    in the return was an admission, and although it is not
    conclusive, the Tax Court was entitled to judge its weight as
    evidence.”), affg. per curiam 
    T.C. Memo. 1968-126
    ; United States
    v. Hornstein, 
    176 F.2d 217
    , 220 (7th Cir. 1949) (cost of goods as
    shown on return were chargeable to taxpayer until he offered
    credible evidence that figures were in error); Estate of Hall v.
    Commissioner, 
    92 T.C. 312
    , 337-338 (1989) (values of stock
    reported on estate tax return are admission by taxpayer, and
    lower value could not be substituted without cogent proof that
    reported values were erroneous); Lare v. Commissioner, 
    62 T.C. 739
    , 750 (1974) (“Statements made in a tax return signed by a
    taxpayer may be treated as admissions.”), affd. without published
    opinion 
    521 F.2d 1399
     (3d Cir. 1975).   Petitioners have failed to
    - 21 -
    submit cogent evidence to overcome the admission on the corporate
    returns that Mid-Nebraska continued to own the loans to
    shareholder accounts after York acquired Mid-Nebraska’s business.
    Petitioners have not proven that the loans to shareholder
    accounts did not exist when Mid-Nebraska ceased business.
    Accordingly, we sustain respondent’s determination that
    petitioners realized capital gain during 1993 from a liquidation
    distribution petitioner received from Mid-Nebraska when it was
    statutorily dissolved in that year.
    Although petitioners claim to have made additional capital
    contributions to Mid-Nebraska between February 1982 and September
    8, 1992, they have failed to establish that they are entitled to
    a greater basis for petitioner’s stock than the amount allowed by
    respondent.   Accordingly, we hold that petitioner’s basis in the
    Mid-Nebraska stock was $33,175 when the corporation was
    dissolved.
    We have carefully considered all remaining arguments made by
    the parties for a result contrary to that expressed herein,4 and,
    to the extent not discussed above, find them to be irrelevant or
    without merit.
    4
    On brief, petitioners do not address the inclusion or
    accuracy of the net depreciable assets or the accounts payable
    amounts shown above. Accordingly, we treat those amounts as
    conceded by petitioners. See Rule 151(e)(4) and (5); Petzoldt v.
    Commissioner, 
    92 T.C. 661
    , 683 (1989); Money v. Commissioner, 
    89 T.C. 46
    , 48 (1987).
    - 22 -
    To reflect the foregoing,
    Decision will be entered
    for respondent.