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when petitioner approached him about investing in the restaurant.
Iron Hill was in arrears with State and Federal taxes. It was
also facing a balloon payment on a mortgage taken out in 1977.
Petitioner convinced Wilberding that he had financial and
business expertise, and outlined a plan to pay off the taxes and
the prime lease. Petitioner would pay Wayanne's debts; in
return, Wayanne would be dissolved and petitioner would become a
50-percent partner in everything connected with the restaurant,
including the 40-year lease and leasehold improvements.
Petitioner paid approximately $47,000 to the Internal Revenue
Service (IRS) in August of 1982 for Wayanne's withholding taxes,
and $25,000 to the State of Delaware.
At trial, petitioner claimed these amounts were loans to
Wayanne, that he is thus a creditor, and therefore any moneys he
took out of the business (which he denies having done) were
simply loan repayments and not taxable income to himself.
Wilberding contends that petitioner was buying a 50-percent
partnership share of the business. Neither a partnership
agreement nor notes evidencing loans are in evidence. Nor are
there any stock agreements or shares or, in fact, anything
showing that any of the entities referred to in this case had any
legal existence.
Petitioner claimed that he created or used various entities
for various aspects of the business. One entity was to buy
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