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stock that petitioners owned and not to the 40,000 shares of K&C
stock that were issued in the name of petitioner’s father and
that related to the $94,000 provided by petitioner’s father that
was contributed to K&C. We agree with respondent.
The evidence in this case undermines the credibility of the
four written promissory notes on which petitioners rely. The
timing and the amount of the four promissory notes do not
correlate with the timing and the amount of the transfers of
funds to K&C. The four promissory notes total $129,682, and the
transfers total $132,538. The testimony regarding the promissory
notes is unclear and inconsistent.
K&C’s initial capitalization of only $5,882 is grossly
disproportionate to K&C’s purported debt obligations. K&C
appears to have been undercapitalized and unable to obtain
outside financing.
Petitioners received no repayments of any of the funds
transferred to K&C and no payments of interest thereon.
On the basis of the evidence and considering petitioners’
burden of proof, we find that petitioners have not established
that the $128,841 claimed business bad debt deduction relates to
a bona fide loan.
With regard to their alternative claim, petitioners argue
that the 40,000 shares of K&C stock were issued to petitioner’s
father due to a clerical error, that they were the real owners of
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Last modified: May 25, 2011