Jerry S. Payne - Page 8

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               In 1987 and 1988, petitioner received additional funds from 2618       
          Inc, and he used those funds (with the exception of $17,281 that was        
          used by petitioner in 1988 for personal purposes) to make payments of       
          principal and interest to TexGuarantyBk on the $275,000 loan.  The          
          following schedule reflects for 1987 and 1988 the funds petitioner          
          received from 2618 Inc to make payments on the $275,000 loan and the        
          principal and interest that petitioner paid to TexGuarantyBk on the         
          loan.                                                                       
                                                  Funds Paid to                       
                         Funds Received      TexGuarantyBk on $275,000 Loan           
               Year      from 2618 Inc         As Principal   As Interest             
               1987      $ 90,900            $68,751        $22,149                   
               1988      121,200             91,668         12,251                    

               For 1988, on its corporate Federal income tax return, 2618 Inc         
          deducted as a business expense for legal fees the above $121,200 in         
          funds that it paid to petitioner relating to the $275,000 loan.             

          Funds Received From 2618 Inc as Legal and Management Fees                   
               During 1987, petitioner received funds from 2618 Inc and from          
          the Club as legal and management fees in the following amounts:             

                          Funds Received from 2618 Inc                                
               Year       As Legal Fees        As Management Fees                     
               1987      $108,713                 $67,500                             
               1988      52,881                   90,000                              











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