- 5 -
During petitioner's tax year ended July 31, 1992, the
advances were represented by a document entitled "Demand Note
Renewal", dated July 31, 1991. This note provided as follows:
I, Mark Mann, promise to pay to Mann Construction Co.,
Inc., the sum of $103,043.30 to reimburse the company
for cash advances and interest accrued to date.
Payment to be made from project management salaries and
bonuses in amounts commensurate with earnings.
This note will continue to bear interest at 9% per year
until paid in full. Payments shall be applied first to
interest and then to principal.[3]
This 1991 document is the only note currently in existence
evidencing Mark Mann's obligation to repay the advances.
However, beginning no later than 1982, petitioner and Mark Mann
executed similar notes frequently, which stated the then-current
interest rate and balance due.
Other than these notes, there was no written loan agreement
between petitioner and Mark Mann. Also, there was no fixed
schedule for repayment of the advances, and Mark Mann did not
provide petitioner with any collateral to secure his claimed
obligation to repay the advances.
Petitioner has stipulated that "Mark Mann's repayment of
the advances was contingent upon his future earnings", and the
3 Notwithstanding the note's reference to "cash advances and
interest accrued to date", the $103,043.30 stated amount was in
fact only the "principal" amount advanced as of July 31, 1991; it
did not include the $8,854.10 of accrued but unpaid "interest" as
of that date.
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