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section references are to the Internal Revenue Code for the year
in issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
Petitioners resided in Wilmington, Delaware, at the time they
filed their petition.
In 1991, Russell Willey made short-term loans (i.e.,
repayment was promised within 6 months) of $200,000 to Casey
Foods, Inc. (Casey), $200,000 to Nanna's Treasures, Inc.
(Treasures), and $70,000 to the Electra Group, Inc. (Electra).
The three companies invested the loan proceeds in the Euro-
American Money Trust Fund (the trust fund). The trust fund was
an independent, unrelated entity, and Mr. Willey did not have any
contact or dealings with anyone associated with it. Mr. Willey's
loans were never repaid.
In July of 1992, Treasures was in need of capital, so its
owner, Wanda M. Dugan, offered to sell 49 percent of Treasures'
stock to Mr. Willey. After reviewing Treasures' operations,
financial records, and projections, Mr. Willey agreed to purchase
the 49-percent stock interest for $300,000. Petitioners
transferred $300,000 to Treasures but never received any
Treasures stock. In 1993, Ms. Dugan filed for bankruptcy, and in
1994 petitioners filed a proof of claim in the proceeding. In
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