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Corporate Income Tax Return, Gandy’s reported net losses of
$1,205,578 and $1,412,516. Near the end of 1993, Gandy’s had
retained earnings deficits of approximately $4 to $5 million.
On December 23, 1993, Gandy’s repaid $5,000 of petitioner’s
advances.9 Otherwise, Gandy’s repaid neither principal nor
interest on any of the advances made by petitioner from 1990
through 1993.
Default on the Gandy’s Bonds and Foreclosure
Gandy’s never made any interest or principal payments on
the Gandy’s bonds. On February 1, 1994, the Gandy’s bonds
trustee declared Gandy’s in default of its bond obligations and
foreclosed on Gandy’s assets. Philip purchased Gandy’s assets
from the foreclosure, and Gandy’s has continued to operate under
the name Macon Manufacturing. In 1994 and 1995, petitioner
advanced additional, undisclosed sums to Macon Manufacturing.
Petitioners’ Return Positions and Respondent’s Determinations
On their 1993 joint Federal income tax return, petitioners
deducted $355,483 as a bad debt deduction and reported a net
operating loss of $169,331.10 On their 1995 joint Federal income
tax return, petitioners claimed a net operating loss of $177,794,
9 The record does not reveal specifically to which advance
this repayment related. Petitioner testified that the repayment
was allocated “to principal.”
10 This amount represents the total amount of money that
petitioner advanced to Gandy’s in 1990 and 1993, less the $5,000
that Gandy’s repaid in Dec. 1993.
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Last modified: May 25, 2011