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note, Stephen and Jeffrey lowered the interest rate to 10
percent.
Jeffrey testified that from the time the note was executed
on September 13, 1990, until it was transferred to petitioner on
February 28, 1991, Stephen made timely monthly interest payments
on the note. Jeffrey, however, did not report any interest
income from Stephen on his 1990 and 1991 Federal income tax
returns.
After the note was transferred to petitioner, Jeffrey
continued to collect interest payments. Jeffrey testified that
interest was paid on the note until approximately September 1992.
At that time, Stephen informed Jeffrey that he was struggling and
having trouble collecting his accounts receivable, and that he
would no longer be able to make interest payments on the note.
On his 1992 Federal income tax return, petitioner reported
interest from Stephen in the amount of $2,100, which is
substantially less than the note provided. Petitioner allowed
Jeffrey to keep any interest payments in excess of the $2,100.
On two occasions Jeffrey, his wife, and their children visited
petitioner in Florida. During these trips, Jeffrey and his
family incurred expenses for airfare, hotel accommodations,
renting a car, and other travel related expenses. Petitioner
told Jeffrey to keep the interest payments as reimbursement for
whatever travel expenses he incurred.
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