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9. Reporting the Assumption for Federal Tax Purposes
INI reported the increased amount of the shareholder loan
account on its returns for the years at issue.
On the basis of our examination of the entire record, we
find that petitioner has not established that he entered into a
bona fide creditor-debtor relationship with INI at the time of
the transactions at issue. We therefore sustain respondent's
determinations on this issue.
Issue 2. Whether Petitioner Had Sufficient Basis in
Development's Indebtedness to Him To Deduct Pass-Through Losses
of $163,487 and $21,022 in 1990 and 1991
Development was indebted to the Carl E. Jones Trust No. 1
(the Trust) for $153,847. Petitioner "assumed" Development's
indebtedness to the Trust by making a journal entry that
transferred the liability to him. Petitioner "paid" the
indebtedness by making journal entries offsetting the annuity
payments owed him by the Trust against the amount he owed the
Trust. Petitioners reported the annuity income on their joint
tax returns for 1989, 1990, 1991, and 1993; however, petitioner
did not issue any checks to the Trust or provide any credible
evidence to verify that he actually made payments to the Trust.
Development was indebted to Carlsgate for $82,132.
Petitioner "assumed" this indebtedness by making a journal entry
that transferred the liability to him. Petitioner "paid" this
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