Thomas and Linda O'Connell - Page 2




                                        - 2 -                                         
          Additions to Tax/Penalties                                                  
          Year      Deficiency      Sec. 6661(a)     Sec. 6662                        
          1987       $611,053         $152,763           -                            
          1988        672,765          168,191           -                            
          1989        113,278             -           $22,656                         
          1990         52,462             -            10,492                         
          Unless otherwise indicated, all section references are to the               
          Internal Revenue Code in effect for the years in issue, and all             
          Rule references are to the Tax Court Rules of Practice and                  
          Procedure.                                                                  
               The issues for decision are:  (1) Whether amounts                      
          petitioners received from two insurance businesses were loans or            
          were taxable distributions; (2) whether petitioners are entitled            
          to deduct losses from fishing activities engaged in by Thomas               
          O’Connell (petitioner) through two S corporations; and                      
          (3) whether petitioners are entitled to a business bad debt or a            
          nonbusiness bad debt deduction.                                             
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated, and the stipulated             
          facts are incorporated in our findings by this reference.                   
          Petitioners resided in Chula Vista, California, at the time that            
          they filed their petition in this case.                                     
               During the years in issue, petitioner owned 75 percent of a            
          corporation named Mayflower Insurance Agency, Inc. (Mayflower).             
          Petitioner was president of Mayflower and in charge of its                  








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