Charles F. Sutter and Cheryl Sutter - Page 13

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          supports respondent's contention in this regard.  Except for the            
          insurance companies, all parties to the transactions profited;              
          the Schwabs received commissions in excess of the amounts                   
          dispersed through their controlled entities; petitioners received           
          life insurance coverage at no cost for a limited period.  No one            
          seemed particularly concerned about whether the debts would be              
          satisfied.  Under the circumstances, the legitimacy of the debt             
          evidenced by each note has not been established.                            
               Our conclusion in this regard is bolstered by the following:           
          (1) At the option of the makers, the notes were payable only from           
          the death benefit proceeds of the life insurance policies, a                
          contingency that made collectibility uncertain, at best; (2)                
          there was never an intent by the makers to continue full coverage           
          under the life insurance policies beyond the initial periods,               
          rendering the notes uncollectible after those periods; and (3)              
          the holders never took the necessary steps to validate the                  
          assignments in order to protect the collateral, actions that we             
          expect would routinely be taken by legitimate creditors.                    
               Consequently, we find that the insurance coverage that                 
          Charles Sutter received under the Royal policy in 1991 and the              
          insurance coverage that Cheryl Sutter received under the Columbus           
          policy in 1992 were obtained in return for notes that did not               
          represent bona fide indebtedness.  It follows that petitioners              
          realized and must recognize income during those years to the                





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