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C. The Promissory Note
On December 31, 1992, petitioner signed a promissory note on
behalf of AIM which stated that AIM would pay $121,596 to
petitioner on demand, with interest to be paid annually at
10 percent beginning on December 31, 1994, and ending December
31, 2000.
AIM reported on its 1992 income tax return that it had
$121,596 in loans from stockholders. AIM did not report any
loans from stockholders on its 1990 or 1991 return.
D. References to the Whittington Property and Related Debt in
AIM’s Financial Statements
1. Application to the Mississippi Board of Contractors
On May 26, 1992, John C. Trussell III (Trussell), one of
petitioners’ certified public accountants, prepared a balance
sheet for AIM. It stated that, on February 29, 1992, AIM owned
real estate worth $89,862 and owed $30,000 for “loans due to
stockholder.” The balance sheet did not state that AIM owed
money to petitioner relating to the Whittington property. On May
29, 1992, AIM applied to the Mississippi State Board of
Contractors for a certificate of responsibility. AIM included in
its application the balance sheet and a financial statement
prepared by Trussell that contained the information shown on the
balance sheet.
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