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headquarters, which the Tators owned and leased to petitioner.
The second project involved the construction of a new office
building in Houston, Texas, which the Tators would own and lease
to petitioner. Petitioner was authorized by its board of
directors to loan funds to the Tators for construction, the
purchase of land, and other business purposes. During the
construction phase of the two projects, petitioner made over 100
advances of funds to the Tators. Each advance was executed by
issuing a separate corporate check, and the Tators used the
advances to pay contractors and meet other expenses. The
advances were not subject to written repayment terms. On the
corporate balance sheets, petitioner reported the advances as
loans to shareholders. Monthly and year-to-date totals were
recorded in two accounts entitled "Mortgage Receivable -
Pittsburgh" and "Mortgage Receivable - Houston".
The Houston project was completed in October of 1992, and
the Pittsburgh project was completed in October of 1993. Upon
the completion of each project, the Tators prepared an
amortization schedule and began repaying the advances. The
amortization schedule for each project delineated monthly
payments over 20 years at an interest rate of 8 percent. The
amortization schedule for the Houston project had a beginning
principal balance of $400,218, while the amortization schedule
for the Pittsburgh project had a beginning principal balance of
$225,777.60.
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