Gerald L. and Erma L. Dunnegan - Page 3

                                        - 3 -                                         
               Petitioners and their son, Gregory Dunnegan, owned all of              
          the stock of Auto Plaza East, Inc. (Auto Plaza), which was                  
          incorporated in April 1991.  Petitioners were the majority                  
          shareholders in Auto Plaza.  Mr. Dunnegan was the president and             
          Mrs. Dunnegan was the secretary of Auto Plaza.  The primary                 
          business activity of Auto Plaza was the purchase and resale of              
          used cars.                                                                  
               Beginning in 1991, petitioners transferred funds to Auto               
          Plaza to cover operating expenses and to purchase vehicle                   
          inventory.  The funds were transferred to Auto Plaza in                     
          increments and on an “as needed” basis, depending on the vehicles           
          purchased and the vehicles still in inventory.  The funds                   
          received by Auto Plaza from petitioners were recorded as “loans             
          from shareholders” in the bookkeeping records.                              
               There were no notes reflecting the transfers from                      
          petitioners to Auto Plaza.  No collateral was provided by Auto              
          Plaza to petitioners with respect to the transfers.  There was no           
          fixed repayment schedule between petitioners and Auto Plaza with            
          respect to the transfers.  Petitioners received payments from               
          Auto Plaza only when funds were available, but they advanced more           
          than was repaid.  No record of repayments was maintained.                   
               Auto Plaza attempted to obtain financing from several banks            
          for its inventory but was not able to obtain traditional bank               
          financing without a personal guaranty from petitioners.  Auto               

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  Next

Last modified: May 25, 2011