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On February 8, 1989, petitioner sold Renegade for a net
price of $472,000. Renegade had been fully depreciated, so the
entire net sales proceeds were taxable to petitioners as capital
gain. The capital gain on the net sales proceeds was not
reported on the returns that were filed by petitioner or by
Billfish for 1989.
Loan Guaranty
Petitioner received wages of $121,000 and $142,500 from
Mayflower during 1987 and 1988, respectively. Linda O’Connell
received annual wages of $30,000 from Mayflower during 1987 and
1988. Petitioner received wages from other entities of $180,000
in 1988 and $470,000 in 1989, and Linda O’Connell received wages
from Jordan in the amount of $30,000 in 1989.
On November 7, 1988, Mayflower borrowed $950,000 from Bent
Tree National Bank. The loan was guaranteed by petitioner. The
note became due on February 6, 1989, but Mayflower defaulted.
The lender seized $7,600.97 from petitioner’s bank account and a
$100,000 certificate of deposit in partial satisfaction of the
guaranty. Petitioners deducted $100,000 as a bad debt on a
Schedule C, Profit or Loss From Business, attached to a second
amended tax return filed for 1990.
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