Salvador A. and Kathleen M. Gaudiano - Page 6

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          Appolo for the Four A debt, and Appolo would not be required to             
          establish a reserve against the Four A debt.                                
               On or about May 13, 1991, petitioners executed two guaranty            
          agreements.  Both guaranties stated that they were supported by             
          adequate and sufficient consideration.  The first guaranty                  
          covered all loans made by Appolo to Four A in the past and to be            
          made in the future.  The first guaranty stated that it was given            
          for good and valuable consideration and "as consideration for               
          Appolo not demanding immediate payment of its existing loans to             
          Four A and as an inducement to Appolo to make future advances to            
          Four A".                                                                    
               At the time of Four A's bankruptcy in 1993, Four A owed                
          $1,106,000 to Appolo.  In 1993, Appolo wrote off the Four A debt            
          as a business bad debt under section 166 without ever demanding             
          payment from either Four A or the Four A shareholders.  As a                
          result, on their respective 1993 Federal income tax returns, G.             
          Asher and L. Asher each reported an ordinary loss of $80,246 as             
          their distributive share of Appolo's bad debt deduction.  During            
          1993, the Four A shareholders had the financial ability to honor            
          the guaranties, and they currently still have such ability.                 
                                       OPINION                                        
          I.  Basis in Four A Stock                                                   
               Petitioners argue that they are entitled to increase their             
          bases of their Four A stock as a result of Four A's 1993                    





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