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the agreement, JTFJ reimbursed $15,442 of expenses Larry Levy
incurred on behalf of JTFJ. The agreement characterized all of
Larry Levy’s advances as loans. Petitioners’ advances were all
made directly to JTFJ.
By May 1987, JTFJ was unable to pay its bills as they became
due. Between May 1987 and April 1988, Larry Levy advanced an
additional $187,096. On May 1, 1988, the note was not paid as
required by its terms.
III. Advances and Bankruptcy
On May 5, 1988, JTFJ filed for protection under chapter 11
of the Bankruptcy Code. The bankruptcy court’s file was
subsequently lost. After the bankruptcy filing Larry Levy
continued to advance funds to JTFJ (i.e., an additional $92,076
between May 1988 and March 1990). By March 31, 1990, Larry Levy
had advanced $599,077 to JTFJ (i.e., $48,250 prior to March 31,
1985, and $130,000, $141,655, $174,696, $80,754, and $23,722 in
JTFJ’s taxable years ending March 31, 1986 through March 31,
1990, respectively). Of these advances, $125,000 of the $599,077
was memorialized by a written note.
Pursuant to the agreement, Larry Levy guaranteed a number of
JTFJ’s debts. From 1988 through 1993, petitioners paid $199,426
on the personal guaranties made to JTFJ’s creditors (i.e., $1,000
in 1988, $37,095 in 1989, $53,806 in 1990, $93,725 in 1992, and
$13,800 in 1993).
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