Eugene Coloman and Louise D. L. Coloman v. Commissioner of Internal Revenue

These are consolidated appeals from the decision of the United States Tax Court (T.C.Memo. 74-78, March 28, 1974) upholding the Commissioner’s determination of deficiencies in appellants’ income tax for the years 1967 through 1970. During those years taxpayers claimed on their tax returns loss deductions arising from certain corporate stock they held which they allege became worthless. The Tax Court held that the taxpayers had failed to establish any basis in the stock, that its basis was, therefore, zero, and by implication that the Commissioner’s disallowance of the loss de ductions taken, and the corresponding assessment of deficiencies, was correct. We affirm.

Taxpayers, husband and wife, with two others, formed a dry cleaning business in 1962 which they operated as a partnership until March, 1964, at which time they incorporated the business in California under the name of Village Valet, Inc. All assets and liabilities of the partnership were transferred to the corporation, and the partners took stock in the corporation in exchange.

In September 1970 the corporation was dissolved and liquidation begun. Taxpayers took possession of some of the corporation’s…