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With respect to the FirsTier note, Henry and Esther contend
that payments made by HJA are not includable in their taxable
income because: (1) A Nebraska State court already has held that
Henry was merely an accommodation party on the FirsTier note and,
therefore, the doctrine of collateral estoppel requires that this
Court find he was not a primary obligor with respect to that
debt, and (2) even if the doctrine of collateral estoppel does
not apply, Henry was not the primary obligor on the FirsTier
loan, and, therefore, he was not required to recognize income
when the loan was repaid.
With respect to the Chevrolet debt, Henry and Esther argue
that Henry was not the primary obligor because (1) the Chevrolet
debt consisted of intercompany debts owed to Chevrolet by other
companies in the Misle group; (2) when HJA, the successor parent
corporation in the 1986 reorganization, paid off the Chevrolet
debt, it was paying off its own debt, not Henry’s debt; and (3)
since Henry was not the primary obligor on the Chevrolet debt,
HJA’s repayment of that debt did not relieve Henry of any
personal liability. Henry also argues that he did not receive
20(...continued)
the FirsTier note and the Chevrolet debt, then HJA is entitled to
a deduction only for the total amount of the covenant not to
compete payments less the payments on the FirsTier note and the
Chevrolet debt (with adjustments in related interest income and
interest expense), and Henry and Esther must report a
corresponding amount as ordinary income on their tax returns.
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