Stephen F. Scofield and Nancy E. Scofield - Page 13

          1987 return.  They reported no gross receipts and claimed that              
          they had a net loss of $59,352 on Schedule C.                               
                    c.   1988                                                         
               Petitioner paid legal fees of $70,843 for the Northeast                
          proceedings and $33,313 in 1988 for the bankruptcy proceedings.             
          The bankruptcy legal fees included fees for:  Attorneys attending           
          the trial on the adversary proceeding in January 1988; research             
          on defenses to bankruptcy discharge under 11 U.S.C. section                 
          727(a)(3) and (a)(5) (1994); compilation of bankruptcy pleadings            
          and memos, including objections to a motion for a Bankruptcy Rule           
          2004 examination and possible chapter 13 plan before discharge              
          ruling by the court; office conferences, telephone calls, and a             
          trip to New Hampshire to meet with Mrs. Scofield; reviewing Mrs.            
          Scofield's deposition; research on fraudulent conveyance                    
          statutes; research on rights of the trustee as a lien creditor;             
          research on the statute of limitations for fraudulent conveyances           
          and statutes of limitations defenses under 11 U.S.C. section 546            
          (1994); and research on the ability to reach and apply proceeds             
          of fraudulent conveyances.                                                  
               Petitioners attached a Schedule C for petitioner's paper and           
          printing business to their 1988 tax return.  On it, petitioners             
          deducted legal and professional expenses of $104,156 and a bad              
          debt loss of $750,000.  They reported no income on the Schedule C           
          and a net loss of $854,156.  Petitioners attached to their 1988             
          tax return a copy of the settlement agreement which released them           

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