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reported their $4,000 distributive shares of such profit on their
1990 individual Federal income tax returns (Forms 1040).
Bad Debt Deduction
Sometime around 1989, Paik was introduced to Sung Ok Sue
(Sue) by family friends. Thereafter, Paik met with Sue on
several occasions. Sue was engaged in a variety of businesses,
including a video arcade and rental establishment.
In November of 1989, Paik personally applied for, and
received, a $30,000 loan from Union Bank (Bank). The loan was
secured with a certificate of deposit (CD) belonging to 3-Koam.
Upon receiving the loan proceeds Paik transferred the funds to
Sue. In exchange, Sue signed a promissory note for the $30,000,
which was made payable to 3-Koam. The note was unsecured, it had
a 0 percent interest rate, and no maturity date. Sue never paid
the $30,000 to 3-Koam, and 3-Koam has never made any formal
demand for the funds. 3-Koam has not hired a collection agency,
nor has it taken any other legal action against Sue to obtain the
money.
The bank used 3-Koam's CD to satisfy the $30,000 outstanding
loan. 3-Koam deducted the $30,000 as a bad debt on its 1990 Form
1065.
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Last modified: May 25, 2011