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point did Lakeview institute legal proceedings or otherwise seek
to collect on an indebtedness from William. Petitioner consulted
with an attorney and accountant in connection with the decision
not to seek collection.
Also notwithstanding the failure to execute the Release
Agreement, Lakeview issued a $75,000 check that was dated
December 30, 1992, and made payable to William. William
deposited the check on April 1, 1993. The following handwritten
legend appears on the back of the check above William's
endorsement:
RECEIVED AS PAYMENT OWED FOR � INTEREST OF LAND & BUILDING
AT 6835 MIDDLEBELT RD GARDEN CITY[.]
A Form 1099 reporting income of $75,000 paid to William was
issued by Lakeview for 1992, on which the payment was
characterized as "Nonemployee compensation". On its 1992 return,
Lakeview claimed a $75,000 deduction for "rent".
In 1990, when petitioner and William were 50-percent
shareholders of Lakeview, Lakeview had purchased automobiles for
use by William and petitioner. Lakeview paid $31,878.25 to
purchase an automobile for William's use. In connection with
that purchase, the car dealer issued a check for $9,000 to
Lakeview as payment for a traded-in vehicle, and William
deposited the check into his personal account.
(...continued)
amount of "Nonemployee compensation" reported as paid to William
Stark by Lakeview, and the $134,116 figure deducted as the
"forgiven" debt on Lakeview's 1992 return.
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