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There was reflected on Al Zuni’s 1992 corporate Federal
income tax return a loan to Khalaf in the amount of $460,600.
This $460,600 purported loan apparently related to the $671,413
stated total purchase price for the jewelry transferred to
Khalaf, less the $196,510 loan that Al Zuni owed to Khalaf and
that was treated by Al Zuni and Khalaf as paid off upon transfer
to Khalaf of the jewelry inventory.
The purported $460,600 loan from Al Zuni to Khalaf in
connection with the transfer of jewelry inventory to Khalaf was
not reflected by a promissory note or by any other loan
documentation. No payments of principal or interest were ever
made by Khalaf on the $460,600 purported loan owed to Al Zuni.
On Al Zuni’s corporate Federal income tax returns for 1983
and subsequent years, the amount of Khalaf’s capital investment
in his shares of stock in Al Zuni was reflected as $486,000.
On his 1992 Federal income tax return, Khalaf did not report
income or gain with respect to his receipt of jewelry from Al
Zuni.
On American Silver’s corporate Federal income tax return for
its taxable year ending September 30, 1993, a loan payable to
Khalaf in the total amount of $671,412 was reflected relating to
American Silver’s receipt on September 24, 1992, of the jewelry
inventory from Khalaf.
On audit of Al Zuni, respondent determined that on
September 15, 1992, Al Zuni distributed, rather than sold, all of
its extant jewelry inventory to Khalaf, that the September 15,
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