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from Holding Co. in exchange for a receivable owing by IRA to
Holding Co.
Pursuant to Kanter's instructions, on December 1, 1985, IRA
sold the receivables due from Tanglewood, LBG, and Sherwood to
Kanter for $10,000, $10, and $1,000, respectively, and sold the
receivable due from Funding Systems to Holding Co. for $20,000.
With respect to each of the sales, Kanter determined the sales
price. The sale prices were not determined by arm’s-length
negotiations.
Neither Kanter nor Holding Co. paid cash to IRA for the
receivables. Instead, receivables due from Kanter and Holding
Co., in the amounts of the respective sale prices of the
receivable, were recorded through adjusting journal entries on
the books of IRA. The sole purpose of the sales was an attempt
by Kanter to provide a basis for IRA to claim a deduction for
Federal income tax purposes.
According to IRA's general ledger, on February 19, 1986, the
$39,500 lent to LBG by IRA and the $47,925 lent to Sherwood by
IRA was repaid to IRA in full. On February 28, 1986, Tanglewood
repaid $6,000 of its loan from IRA, and on June 24, 1986, IRA
received repayments on the Funding Systems note in the amounts of
$10,000, $4,500, and $10,000. The payments from Funding Systems
were credited to Holding Co. by an adjusting journal entry on
IRA's general ledger. The payments from Sherwood and LBG were
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