National Industrial Investors, Inc. - Page 10

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            and the McMahon Note, therefore, would not become immediately due                          
            and payable.                                                                               
                  On March 4, 1988, petitioner refinanced the Burke Property.                          
            Petitioner borrowed $475,000 from San Francisco Federal Savings                            
            (San Francisco Loan) and paid off the remaining $323,731.51                                
            balance of the TIAA Loan and the Owen's Financial Loan, the                                
            remaining balance of which was $86,181.50.  Respondent has                                 
            conceded that petitioner was entitled to deduct the interest on                            
            the San Francisco Loan in 1989 and 1990.  But the 1988 interest,                           
            which substantially contributed to petitioner's net operating                              
            loss for that year, has not been conceded to be deductible.                                
                  The San Francisco Loan required petitioner to pay $3,994.06                          
            interest and principal monthly, beginning on April 1, 1988, and                            
            continuing every month thereafter for 12 months.  Afterward, the                           
            note established a new monthly payment for the next 12 months                              
            depending upon market interest rates.  The total of the payments                           
            required in 1988 was $35,946.54.                                                           
                  The interest rate of the loan was fixed at 9.5 percent for                           
            the first 6 months of the loan.  After that, the interest rate                             
            varied from month-to-month in accordance with current market                               
            interest rates.  As of the end of 1988, the interest rate on the                           
            San Francisco Loan had increased to 11.307 percent.                                        
                  As previously stated, petitioner controlled several                                  
            subsidiaries over the years.  These were Controlled Casting                                





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