- 6 -
that point was also having trouble paying salaries to him and
Burkhalter. He found another job with a competing travel
organization.
After leaving National's employ, petitioner explored the
possibility of collecting on the Fries note. He discussed the
matter with his attorney, Edwin W. King (King). In a letter
dated March 22, 1990, King wrote that, under the circumstances,
he was unwilling to undertake collection proceedings against
National.
Pursuant to the letter from King, and after petitioner
consulted with his accountants, petitioners claimed a $75,000 bad
debt deduction on their 1989 return. Petitioners included the
$300 initially paid for the National stock in the deduction.
On February 5, 1993, petitioners signed a Consent to Extend
the Time to Assess Tax for 1989, extending the period of
limitations until April 15, 1994. Respondent issued a statutory
notice of deficiency to petitioners for 1989 on August 11, 1993,
completely disallowing petitioners' claimed bad debt deduction.
After filing a lawsuit against National in 1993, petitioner
was awarded a consent judgment on the Fries note by the State
Court of Dekalb County in the amount of $123,255 ($74,700
principal and $41,085 interest, and attorney's fees) on January
10, 1994. On February 7, 1994, the shareholders of National
(except petitioner) held a meeting. At that time, they voted to
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