Cerand & Company, Inc. - Page 5

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          policy on Mr. Cerand held by FWC with $160,859 cash surrender               
          value.  Petitioner recovered the cash surrender value and                   
          reported the income as a debt reduction.  No further attempts               
          were made to secure payment from the three defunct corporations.            
               In 1990, petitioner claimed a bad debt deduction for the               
          unpaid balances of ASC and CAI.  In 1991, petitioner claimed a              
          bad debt deduction for FWC’s unpaid balance.  In 1992, petitioner           
          claimed an NOL carryforward that was generated by the bad debt              
          claims.  Respondent disallowed the following bad debt deductions            
          as ordinary losses, determining that they were capital losses.              
          1990           1991                                                         
               Cerand Aviation, Inc.        $174,760         ---                      
               Aviation Services Corp.        43,331         ---                      
               First World Co., Inc.           ---         $681,112                   
               Total                    218,091        681,112                        
          Respondent asserts that the funds advanced by petitioner were               
          actually capital contributions to equity rather than debt.  If              
          the bad debt deductions are not allowed as ordinary losses, then            
          the 1992 NOL carryforward is not allowable, and a previously                
          unavailable charitable deduction would be allowed.                          
                                       OPINION                                        
               The sole adjustment under consideration involves the                   
          question of whether petitioner is entitled, under section 166, to           
          business bad debt deductions for 1990 and 1991 due to the failure           
          of FWC, CAI, and ASC to repay advances made by petitioner.  All             
          other adjustments depend on the outcome of this primary issue.              





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