James R. and Myrtice L. Peacock - Page 4




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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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