R. George and Penney Gregersen - Page 2




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               After concessions, the issues remaining for decision are                  
          whether petitioners are:  (1) Entitled to a deduction for accrued              
          interest; (2) entitled to a net operating loss carryover; (3)                  
          entitled to deductions claimed by petitioner’s wholly owned S                  
          corporation; and (4) liable for accuracy-related penalties.                    
                                    FINDINGS OF FACT                                     
               When the petition was filed, petitioners resided in Salt                  
          Lake City, Utah, where Mr. Gregersen has been engaged in the                   
          newspaper publishing business for nearly 30 years.  In 1983, Mr.               
          Gregersen began operating and managing his weekly business                     
          publication, the Enterprise Business Newspaper (EBN), through the              
          Enterprise Newspaper Group (ENG), his sole proprietorship.  On                 
          July 10, 1987, Mr. Gregersen incorporated Enterprise Business                  
          Newspaper, Inc. (EBNI), an S corporation, of which he was the                  
          sole shareholder.                                                              
               Neuman Petty was a longtime personal friend and financial                 
          backer of Mr. Gregersen.  They transacted business with each                   
          other over numerous years through a variety of controlled                      
          entities.  Because of their close personal and business                        
          relationship, Mr. Petty readily and frequently advanced money to               
          Mr. Gregersen.  Mr. Petty and Mr. Gregersen generally did not                  
          distinguish between themselves and their respective controlled                 
          entities.  In addition to funds lent for other purposes, Mr.                   
          Petty lent approximately $900,000 to finance the expansion of Mr.              






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