Bill L. and Patricia M. Spencer - Page 13

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          the Spencers did not report any interest income from SPC-SC and             
          did not claim any interest deductions for amounts paid to SSI or            
          SCNB.                                                                       
               SPC-SC's corporate returns, Forms 1120S, did not reflect any           
          amount on Schedule L as "loans from shareholders" for taxable               
          years 1990, 1991, or 1992.  The debts SPC-SC incurred in                    
          purchasing the assets from Mr. Spencer and Mr. Boozer were                  
          reflected on Schedule L as "mortgages, notes, and bonds payable             
          in 1 year or more."12  SPC-SC's Schedules L, for taxable years              
          1990, 1991, and 1992, reflected that its capital stock was $1,000           
          and that its paid-in capital was zero.  SPC-SC did not list the             
          bank loan on its books as a capital contribution.                           
          SPC-FL Transaction                                                          
               Three years later, in a similar series of transactions, SSI            
          nominally sold its Florida assets and operations to Mrs. Spencer,           
          the Schroeders, and Lewis Smith (the purchasers) for $1,150,000.            
          The purchasers subsequently nominally conveyed those same assets            
          to a newly organized S corporation, SPC-FL, for $1,150,000.  As             
          in the case of the SPC-SC transaction, Mr. Spencer caused SSI to            


          12   The amounts reflected on SPC-SC's Schedules L as "mortgages,           
          notes, and bonds payable in 1 year or more" are as follows:                 
               Year      Beginning of Tax Year    End of Tax Year                     
               1990      $1,246,569               $1,170,308                          
               1991      1,170,308                1,161,981                           
               1992      1,161,981                1,170,119                           




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