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repayments Mark Mann made in fact came primarily from the salary
and bonuses he earned working for petitioner. However, Mark Mann
also made several repayments to petitioner while he was working
for another company (the Ross Bros. firm).
During the approximately 10 years petitioner advanced funds
to Mark Mann:
1. Petitioner advanced a total of $126,653 to Mark Mann;
2. petitioner accrued $48,396 in "interest" on the $126,653
advanced, resulting in aggregate balances due petitioner of
$175,049; and
3. Mark Mann repaid petitioner a total of $57,046, leaving
a balance due, as of July 1992, of $118,003.
On July 30, 1992, Richard Mann, on behalf of petitioner,
signed a document entitled "Resolution", which stated:
In view of Mark Mann's financial circumstances,
together with the Company's lack of work the last few
years and with no promise of contracts in sight, it is
to the company's best interest to write off this loan.
It is therefore resolved to cancel this loan in its
entirety, effective July 30, 1992.
Petitioner deducted the entire $118,003 balance due from
Mark Mann as a worthless bad debt, on its tax return for the year
ended July 31, 1992; of this balance due, $6,106 represented
advances made after July 31, 1991.
When it canceled the advances on July 30, 1992, petitioner
had not made any written demand for payment, attempted to
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