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increase in insurance costs, permanently closed the wave pool
facility and attempted to sell the wave pool equipment. When
these attempts were unsuccessful, MOC dismantled the equipment
and moved it to another location where it remained in storage
through 1988.
In 1984, Mr. Buda began converting 5 Acre into Z Buda
Outlets, a retail outlet mall. MOC and Mr. Buda borrowed
$1,461,000 from Citizens National Bank (the bank). Proceeds of
the loan were used to fund construction work on 5 Acre. As
collateral for the loan, MOC assigned the bank the leasehold
interest in, and right to all rental income from, 5 Acre. As
additional collateral, Mr. Buda assigned interests in two other
parcels of realty that he held in his individual capacity.
The shops in the mall were leased to various businesses.
Mr. Buda signed, either in his individual capacity or as
president of MOC, the leases and related amendments and
assignments. All cash transactions relating to the operation of
the mall were processed through a bank account under the name "Z
Buda Factory Outlets". The mall's income and expenses were
reported on petitioners' records and tax returns. The expenses
reported by petitioners for 1985, 1986, 1987, and 1988 included
$30,000 in rent payments, which were reported as income on MOC's
records and tax returns.
On December 30, 1988, MOC was liquidated. Its leasehold
interest in 5 Acre and all other corporate assets were
distributed to Mr. Buda. On his 1988 return, Mr. Buda reported
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Last modified: May 25, 2011