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Petitioners' counsel informed respondent's counsel that
petitioner and the new financial backer would testify to the above
facts. Respondent's counsel determined that no one was available to
contradict petitioners' position.
Thus, it was at the February 16, 1995, meeting that
respondent's counsel "was presented with a logical explanation" for
the first time as to why Mr. Hargis "gave" petitioner 51 percent of
the Elite stock. Also, on February 24, 1995, petitioners provided
respondent with numerous documents.
After considering the explanation offered at the February 1995
meeting and the newly acquired documents, respondent's counsel
decided to settle the case by allowing petitioners to treat the
cancellation of indebtedness as a purchase-money debt reduction
pursuant to section 108(e)(5) so that petitioner's basis in the
stock of Elite would be $72,000. Respondent's counsel informed
petitioners of the concession on March 13, 1995.
Respondent's counsel settled this case on March 13, 1995, for
the following reasons: (1) Petitioners' counsel's explanation of
the transactions in February 1995, together with the recently
acquired documents, provided a more complete account of the
transactions; (2) respondent's counsel did not have any evidence
other than the documents to refute petitioners' explanation; (3) it
was unclear that the Court would not consider Elite rather than H.
Enterprises to be the seller of the stock and apply section
108(e)(5) to treat the cancellation of indebtedness as a reduction
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