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president of BCBI, and the corporate resolutions were signed by
petitioner as the sole member of BCBI's board of directors. The
funds advanced by petitioner on both occasions were used for
BCBI's current operating expenses.
Except for the amounts and due dates, the terms and
conditions of the notes are identical. Each refers to petitioner
as the lender and BCBI as the borrower. The advances are
characterized as loans from petitioner to BCBI with principal and
interest (prime rate plus 2 percent computed quarterly) due in
1 year from the date of the note. Each note was renewable at the
option of petitioner (as the lender). If BCBI defaulted on any
term of the notes, became insolvent, filed a bankruptcy petition,
or had a receiver appointed, the notes would become immediately
due and payable in full. Neither note was fully paid as of its
due date. The notes were not renewed, and the repayment periods
were not extended.
Petitioners reported interest income from BCBI on their
joint Federal income tax returns as follows:
Year Amount
1987 -0-
1988 -0-
1989 $39,102
1990 35,236
1991 20,599
Although less than clear from the record, it appears that from
time to time prior to December 20, 1991, petitioner, or
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