Mann Construction Co., Inc. - Page 20




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          advances began.  We also find that this debtor-creditor                     
          relationship continued--with a reasonable expectation of                    
          repayment based on Mark Mann's actual and potential employment              
          with petitioner, and on Mark's employment with the Ross Bros.               
          firm--until the end of petitioner's tax year ended July 31, 1991.           
          Accordingly, we find that advances made and interest accrued                
          prior to (or on) July 31, 1991, were bona fide debt.                        
               In or around July 1991, however, Mark Mann sought credit               
          counseling, and the counseling service recommended bankruptcy.              
          In September 1991, Mark became unemployed, and he remained                  
          unemployed throughout 1992.  As a result of this unemployment,              
          during petitioner's tax year ended July 31, 1992, Mark Mann was             
          no longer able to meet his obligations as they came due.                    
          Moreover, in March 1992 petitioner decided to discontinue, and              
          sold the assets of, its Government contracting business, in which           
          Mark had worked.  Finally, it is clear that on July 21, 1992,               
          Mark's liabilities to parties other than petitioner significantly           
          exceeded his assets.                                                        
               For all these reasons, we find that during petitioner's tax            
          year ended July 31, 1992, Mark Mann's financial situation had               
          deteriorated to such an extent that petitioner no longer had a              
          reasonable expectation of repayment.  We therefore find, on the             
          basis of all the facts and circumstances, that petitioner and               
          Mark Mann could not have intended to create, and did not create,            





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