Leonard Ray Blanton and Betty Blanton - Page 12

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            to pay off the total obligation and that they would be ready to                             
            go through with the transaction on December 4, 1978.  Jack Ham                              
            agreed to pay both principal plus accrued interest, which on                                
            December 4, 1978, would total $38,334.50.                                                   
                  Henry Hooker (Hooker), an attorney, who also was a limited                            
            partner in South Texas Drilling, was responsible for preparing                              
            two separate assignments of partnership interest, one from                                  
            petitioner to Jack Ham, and the other from petitioner to Redi-                              
            Built for purchase prices of $23,334.50 and $15,000,                                        
            respectively.  The $38,334.50 total purchase price was paid with                            
            two checks, each made payable to Commerce Bank for the above                                
            stated amounts.  Pursuant to the transfer, Jack Ham and Bert Ham                            
            received an interest of 60.87 percent and 39.13 percent,                                    
            respectively of petitioner's 2.4 percent interest in South Texas                            
            Drilling.  Upon receiving the two checks, Commerce Bank used the                            
            funds to retire petitioner's outstanding oil partnership debt.                              
                  On December 27, 1978, Jack Ham assigned his interest in                               
            South Texas Drilling to Bert Ham for $334.50.  Jack Ham had                                 
            previously told Harris that he would resell the oil partnership                             
            interest to Bert Ham prior to the end of the year at a loss for                             
            tax purposes.                                                                               
                  Petitioners failed to report the receipt of the $38,334.50                            
            in 1978 on their original Form 1040.  On March 26, 1980,                                    
            petitioners filed an amended 1978 Federal income tax return, Form                           

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