Billie and Florence Lykins - Page 6

                                         -6-                                          
               On October 1, 1984, Mr. Adkins, Mr. Templeman, and                     
          petitioner executed a contract in which Mr. Adkins agreed to                
          transfer his 50-percent partnership interest in J & M to                    
          petitioner.  In exchange, petitioner agreed to assume and pay all           
          of Mr. Adkins' share of J & M's outstanding liabilities.  Prior             
          to October 1, 1984, petitioner and Mr. Templeman had applied for            
          and received a $700,000 loan in order to satisfy J & M's                    
          outstanding liabilities.                                                    
               Sometime before October 1, 1984, Mr. Adkins developed severe           
          heart problems.  Mr. Adkins' medical condition prevented him from           
          executing the October 1, 1984, agreement on an earlier date.                
               Sometime in 1985, Tag Coal paid petitioner $44,806.72                  
          against the amount advanced by petitioner on August 30, 1984.               
               Tag Coal was ultimately unsuccessful in recovering the                 
          substantial payments owed to it under its contract with                     
          Commonwealth.  Consequently, on September 11, 1989, Tag Coal                
          filed a petition for bankruptcy under chapter 7 with the                    
          bankruptcy court for the Eastern District of Kentucky.  At the              
          time that the petition was filed, Tag Coal owed petitioner                  
          $131,163.79 in respect of the amount advanced by petitioner on              
          August 30, 1984.                                                            
               On an amended income tax return (Form 1040X) for 1989,                 
          petitioners claimed that the amount advanced to Tag Coal and not            
          repaid; i.e. $131,163.79, was a business bad debt.  On an amended           
          income tax return (Form 1040X) for 1990, petitioners claimed a              




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