- 9 -
As the Formosa construction progressed, it became clear that
UPE’s expenses were higher than Stewart had anticipated, and
UPE’s performance under the contracts required an additional
infusion of capital. On October 11, 1990, Stewart negotiated a
third loan from Grocers to petitioner in the amount of $300,000.
That loan, which was in turn advanced to UPE, was designated for
use as UPE’s working capital but secured by petitioner’s
fixtures, equipment, machinery, furniture, inventory, cash, and
receivables.
The three loans from Grocers to petitioner, and the loan
from Grocers to UPE, were personally guaranteed by Stewart and
bore interest at 10 percent.
Petitioner’s certified public accountants, Everett Enoch
Kennemer III (Kennemer) and Marylin C. Anderson of the accounting
firm Kennemer, Masters, Koester & Wallace, L.L.C., advised
petitioner in its tax matters and also prepared financial
compilations weekly and sometimes quarterly. Kennemer was
intimately familiar with petitioner’s business. In addition to
advising petitioner, Kennemer’s firm also provided accounting
services for UPE.
Petitioner did not notify its accountant about the advances;
and although petitioner is an accrual method taxpayer, there was
no interest increase on petitioner’s books allocable to the UPE
advances. No interest income from the advances was reflected on
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011