- 8 - 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.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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