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Sometime in 1989, petitioner organized Hampton Partners, of
which he was the sole general partner and one of three limited
partners. The three limited partners contributed a total of
$1,750,000 to Hampton Partners, with petitioner contributing
$250,000.
Hampton Partners was formed with the objective that
petitioner would use the contributed capital to generate profits
in the stock market. During the first six months of 1989
petitioner made numerous stock trades that generated large
profits. However, in the latter part of the year the partnership
lost a substantial amount in a trade involving stock of United
Airlines. A dispute then arose among the partners, resulting in
lawsuit's being filed involving claims by the other partners
against petitioner, and a counterclaim by him against them.
Petitioner repaid the other partners, against the advice of
his accountant, in the way he thought the money should go back,
but the partners were not satisfied. Petitioner had never been
sued before, and he found the litigation to be very stressful and
career threatening.
In October, 1989, petitioner withdrew $208,802 from his
individual retirement account (IRA), out of which amount he
placed $200,000 in his own brokerage account. The $208,802 was
reported as a taxable distribution on petitioners' 1989 Form
1040.
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