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to Florida’s west coast, the acquaintance transferred the
condominium to Mr. Peacock subject to a mortgage.2 Mr. Peacock
later sold the condominium but never transferred any of the money
to the dealership.
The dealership, an S corporation for Federal income tax
purposes, claimed a $50,000 bad debt deduction for 1995 on
account of the loan. Respondent disallowed that deduction. On
May 18, 1998, the dealership’s 51-percent shareholder agreed to
the disallowance. At that time, Mr. Peacock continued to own the
remaining stock of the dealership.
Petitioners organized Profitable Management Services, Inc.
(PMSI), an S corporation, on December 2, 1993. PMSI’s president
and only shareholder was Ms. Peacock. Both she and Mr. Peacock
were paid employees of PMSI. But for services connected with the
fishing activity, the only service that Ms. Peacock performed for
PMSI was answering its telephones. From 1994 through 1997, PMSI
paid the following amounts to petitioners and to its other
employees:
Year Mr. Peacock Ms. Peacock Other employees
1994 -0- -0- -0-
1995 $7,000 $7,000 $30,098
1996 26,000 19,500 72,439
1997 23,000 25,500 1
1 The record does not disclose this amount.
2 The record does not disclose either the value of the
condominium or the amount of the mortgage.
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