Wallace R. Noel and Robinette Noel - Page 1

                                 T.C. Memo. 1997-113                                  

                               UNITED STATES TAX COURT                                

                 WALLACE R. NOEL AND ROBINETTE NOEL, Petitioners v.                   
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 18000-94.            Filed March 5, 1997.                   

                    P owned stock in Corp. A.  Corp. A operated numerous              
               restaurants under a franchise arrangement with Corp. B.  P             
               sued both Corp. A and Corp. B, alleging two contract claims            
               and a tort claim.  Corp. B and P entered into a settlement             
               agreement, whereby Corp. B purchased P's stock in Corp. A              
               and, in return, P released his claims against Corp. B.  P              
               used some of the proceeds received as a result of the                  
               agreement with Corp. B to settle a loan made to P by Bank X.           
               The loan balance consisted of both principal and accrued               
               interest.  P also wrote off an investment in Company Y.                
                    Held:  $295,461 of the proceeds P received from Corp. B           
               is excludable under sec. 104(a)(2).                                    
                    Held, further:  Except for $219,000 of the fees that P            
               paid to his lawyers, P failed to substantiate his additions            
               to basis in Corp. A stock.                                             

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