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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