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election and therefore did not qualify for the general election
held on November 21, 1987.
On October 30, 1987, after the primary election had taken
place, the Corporation determined that there was no realistic
possibility that its loan to the Committee would be repaid.
Accordingly, the Corporation converted the loan to the Committee
into a political contribution. The Corporation reported the
contribution as one of a number of nondeductible expenditures on
a Schedule M-1, Reconciliation of Income per Books With Income
per Return, attached to its 1987 return.
All of the moneys the Committee had classified as loans in
its State campaign finance reports were ultimately reclassified
as cash contributions; none of the loans were ever repaid.
Neither the Laniers nor Vance received any cash distributions
from the Committee. The Committee did not assume any of Vance's
or the Laniers' debts, nor did it pay any of their personal or
educational expenses. In addition, neither the Laniers nor Vance
used any Committee property for their own personal benefit.
On February 11, 1993, respondent issued notices of
deficiency to the Corporation and the Laniers. In the notices of
deficiency, respondent determined that the FMV of the Property
was $640,000 on March 31, 1987. Respondent further determined
that the selling price of the Property equaled its book value in
the hands of the Corporation--$423,468. Among other things,
respondent made adjustments to income of $216,532 for both the
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