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Respondent determined a deficiency in petitioners' Federal
income tax for 1990 in the amount of $5,090. The sole issue to
be decided is whether petitioner is entitled to any deduction in
connection with an alleged business bad debt of $32,722, which
respondent disallowed in full. Respondent contends,
alternatively, that the alleged debt was an investment or a
nonbusiness bad debt, and, in any event, that it has not been
shown to have become worthless in 1990.
Some of the facts have been stipulated and are so found.
The stipulation of facts is incorporated herein by reference.
Petitioners resided in Murrieta, California, at the time of the
filing of their petition.
Prior to 1988, Douglas V. Merante (hereinafter petitioner
when used in the singular) was involved in corporate management.
Petitioner had served as vice president of Superior Steel in New
York. In addition, petitioner was an investor and president of a
corporation entitled Koramics Inc. (Koramics), which specialized
in importing high-quality, high-tech ceramic tile from Germany
and Belgium. However, Koramics was unsuccessful and by 1987
became inactive. In 1988, petitioners relocated to California,
and petitioner began looking for new business opportunities.
Shortly thereafter, petitioner met Richard Sheldon (Sheldon) at a
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