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Gregersen’s newspaper businesses. Mr. Petty subsequently wrote
off many of these loans as bad debts.
On November 30, 1988, Mr. Gregersen executed a $386,000
promissory note (the note) in favor of Claims, Inc. Employee
Pension Benefit Plan Trust (trust). Mr. Petty was trustee and
sole beneficiary of the trust. The note consolidated several
outstanding loans between Mr. Petty and Mr. Gregersen, was
payable 60 days after demand, accrued interest at 18 percent, and
was secured by “All of the Stock of the Enterprise” (i.e., the
stock of EBNI). EBN, ENG, and Mr. Gregersen signed the note.
Mr. Gregersen signed for EBN and ENG. Both Mr. Petty and Mr.
Gregersen believed that the note would be paid from the proceeds
of Mr. Gregersen’s newspaper business. The proceeds of the
consolidated loans were used to finance EBN’s operations.
Mr. Gregersen, in 1989, transferred EBN, its assets, and its
liabilities from ENG to EBNI. On July 30, 1992, EBNI filed for
bankruptcy protection under Chapter 11 of the Bankruptcy Code.
In the schedules accompanying the bankruptcy petition, Mr.
Gregersen listed a $115,000 obligation owed to Nupetco (Nupetco
loan) one of Mr. Petty’s wholly owned entities but did not list
the note. The trust did not demand payment from any of the
signers. From 1988 through 1994, Mr. Gregersen made one payment
of $1,000 (i.e., in 1994).
Petitioners did not file tax returns for 1987 and 1988. On
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