- 13 -
needed money from a concerned grandfather who wanted to help out.
7. Ability to Repay
The record establishes that petitioners' annual income was
not sufficient to allow them to maintain their lifestyle and
repay their obligations to Drachman. Therefore, petitioners have
not shown that there was a reasonable expectation that they could
have repaid the loans from their annual income.
8. Records of the Loans
The only records relating to the purported loans are the
notes signed by petitioner and Drachman, and the Christmas
letters forgiving the shares.
9. Reporting the Loans for Federal Tax Purposes
Petitioner testified that he thought he recognized income
from discharge of indebtedness in the years when shares of the
loans were forgiven, but did not introduce income tax returns
from those years indicating that he had reported the forgiven
amounts.
Although not dispositive, we examine the purpose of the
transfers of stock. Petitioners and respondent dispute the
underlying cause of the transactions. Petitioners assert that
shares of Price Co. stock were lent to them in October and
December 1987 as collateral for threatened margin calls on their
account. These margin calls, petitioners claim, were the result
of the stock market crash of October 1987 and a corresponding
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011