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bonds, and other security interests to MAF for nominal
consideration.62
On December 17, 1987, IRA acquired notes receivable totaling
$1,120,889 from IFI in cancellation of IFI's $507,648 note due to
IRA. This transfer included the notes receivable listed above
except those due from HELO and Cedilla Invest. in the amounts of
$485,824 and $345,868, respectively. (This is the same
transaction in which IRA acquired the Ballard, Lisle, and
Abernathy notes previously discussed.) While the principal
amounts of the notes acquired from IFI were greater than the
amounts set forth above, through an adjusting journal entry IRA
reduced the basis of these notes. On December 30, 1987, IRA sold
the notes for $1 each to MAF in an attempt to establish
worthlessness. Kanter testified that IRA knew that the notes
were worthless at the time IRA acquired the notes from IFI. The
transaction was entered into by IRA and IFI as a means to shift
62
Kanter assisted the CMB and RWL Trusts in obtaining these
loans from IRA and IFI to permit the trusts to invest in various
movie partnerships. The loans to the trusts essentially amounted
to nonrecourse loans to Ballard and Lisle, as Ballard and Lisle
had no legal obligation to repay the loans. However, because the
trusts were grantor trusts, Ballard and Lisle claimed the tax
benefits from the trusts' movie partnership investments on their
respective individual income tax returns. During the year at
issue, Cedilla Invest. was a subsidiary of IRA and is the same
entity that was involved in the equipment leasing transactions
considered in Issue 22. During 1983 and 1984, HELO was a
subsidiary of Holding Co. Elk Investment and Inter Alia
Investment had likewise borrowed funds to invest in unsuccessful
movie partnerships.
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