Donald R. Martin - Page 12

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                    Activewear to Jackson.  Petitioner also contends that the                                                                                              
                    security interests are not taxable to him because he received no                                                                                       
                    benefit from them in the years in issue.  For reasons discussed                                                                                        
                    next, we agree with petitioner.                                                                                                                        
                    B.        Whether Petitioner Misappropriated Funds From Activewear                                                                                     
                              Respondent contends that petitioner misappropriated the                                                                                      
                    funds Activewear lent to Jackson and his corporations.  We                                                                                             
                    disagree.  When he filed his lawsuit, Waddell thought that                                                                                             
                    petitioner had embezzled money from Activewear.  However, after                                                                                        
                    he investigated the matter, he believed that petitioner did not                                                                                        
                    benefit from the loans to Jackson.  Petitioner had no reason to                                                                                        
                    believe that Waddell would not approve the advances because                                                                                            
                    Waddell had approved the first one, and he did nothing to conceal                                                                                      
                    the loan records from Waddell.  Petitioner credibly testified                                                                                          
                    that he received no benefit from Activewear's loans to Jackson.                                                                                        
                    Petitioner was not criminally charged for his conduct related to                                                                                       
                    Activewear.  We do not believe that he misappropriated any funds                                                                                       
                    from Activewear.                                                                                                                                       
                              Respondent contends that the transfers of funds from                                                                                         
                    Activewear to Jackson's corporations were not loans because there                                                                                      
                    were no written agreements and Jackson provided no collateral or                                                                                       
                    other security.  We disagree.  Respondent concedes that the first                                                                                      
                    $50,000 check was a loan even though it was based on an oral                                                                                           
                    agreement.  The later transfers were also loans based on oral                                                                                          
                    agreements.                                                                                                                                            



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