- 8 -
unable to obtain, a loan from CreditBanc for the purchase of
Bridgepoint and to construct the office building. In order to
facilitate the sale of Bridgepoint and the construction of the
office building, petitioner borrowed $1,500,000 from Continental
Savings Association (Continental Savings), invested the money in
certificates of deposit issued by CreditBanc, and pledged the
certificates of deposit to CreditBanc to secure the partnership's
loan.
The partnership agreed to reimburse petitioner for the
certificates of deposit within 14 months, plus the difference
between the interest expense petitioner incurred at Continental
Savings and the interest income petitioner received on the
certificates of deposit. In addition, the partnership agreed
that petitioner would have a net profits interest in the
Bridgepoint project, and that petitioner was not a partner or
joint venturer with the partnership.
The partnership failed to perform pursuant to this agreement
and, in 1986, CreditBanc foreclosed on Bridgepoint and the office
building. As a result, petitioner sustained a $703,659 loss.
During 1986, petitioner paid $285,142 in interest on his loan
from Continental Savings.
On their 1986 Federal income tax return, petitioners
reported the $703,659 as an ordinary loss. Petitioners also
reported the interest as a deductible mortgage interest expense.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011