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drafting checks at Mr. Skoller’s direction. In 1994, Ms. Skoller
left her employment at Mr. Skoller’s office and started a typing
business in her home.
In 1985, Mr. Skoller and Samuel L. Sachs formed Princeton
Residential Associates Limited Partnership (PRA). PRA was a real
estate venture in the business of purchasing residential real
estate in East Windsor and West Windsor, New Jersey, for rental
and resale. Mr. Skoller solicited clients from his tax practice
to participate in the real estate venture.
In 1985 or early 1986, Mr. Skoller borrowed $60,000 to
advance to PRA. Over the course of PRA’s existence, the
residential real estate market values in New Jersey declined.
The values of PRA’s homes fell below their purchase prices, and
PRA did not have equity in its assets. As a result, no outside
lenders would provide loans to PRA. In 1994, PRA sold its last
house and apparently ceased doing business.
Mr. Skoller prepared petitioners’ joint 1994 Federal income
tax return. He reported the income and expenses from his tax
practice on Schedule C, Profit or Loss from Business. On that
Schedule C, petitioners claimed a $96,211 business bad debt
deduction for amounts allegedly lent to PRA. The return also
reflected wage income earned by Ms. Skoller, capital gains, a
separate Schedule C from Ms. Skoller’s typing service, and a
Schedule E, Income or Loss From Partnerships & S Corporations,
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Last modified: May 25, 2011