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Under the plan, petitioners agreed to be repaid the funds that UI
allegedly owed petitioners only after UI’s other creditors had
been repaid by UI. UI’s debt restructure plan, however, was not
accepted by a sufficient number of UI’s other creditors to take
effect.
By letter dated April 1, 1992, UI issued to its creditors a
“Notice of Insolvency and Dissolution”, indicating that all
secured creditors should execute against their collateral.
Petitioners did not execute against the UI computer software that
secured the 1989 promissory note.
On petitioners’ 1990 joint Federal income tax return,
petitioners claimed under section 1244 an ordinary loss of
$184,874, relating to the stock that was issued in the name of
the family trust in 1990 that related to the principal amount due
under the 1989 promissory note. Also, for 1988 and 1989,
petitioners claimed net operating loss (NOL) carryback deductions
arising from the claimed $184,874 section 1244 ordinary loss
deduction for 1990.
On audit for 1990, respondent disallowed petitioners’
claimed $184,874 section 1244 ordinary loss deduction and the
claimed 1988 and 1989 NOL carryback deductions relating thereto.
At trial and on brief, petitioners disavow the $184,874
section 1244 ordinary loss claimed on their 1990 Federal income
tax return with regard to the investment in UI and the 1989
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