-6- (and had accrued as income) on the sublease. Lakeland agreed to pay $200,000 of the $600,000 immediately and make subsequent annual payments of at least $100,000 until the entire $600,000 (exclusive of interest at the prime rate) was fully discharged. The debt settlement agreement provided: Notwithstanding anything contained herein to the contrary, the terms of this Agreement shall be contingent upon the consummation of the contemplated redemption of Crittenton Development Corporation’s interest in Peachwood Center Associates and Peachwood Nursing Center. Keith J. Pomeroy and Horace D’Angelo Jr. hereby agree to pursue in good faith the consummation of said redemption on an expeditious basis. Pursuant to the redemption agreement, dated November 30, 1995, PNC redeemed Crittenton’s 50-percent interest for cash. As of that date, PNC terminated for income tax purposes pursuant to section 708(b)(1)(B). Because of the mandatory redemption of Crittenton and the resulting termination of PNC, PNC and H.K. Peach considered the eliminated debt of $392,796 (the original debt of $992,796 less the settlement amount of $600,000) as a worthless debt that belonged entirely to H.K. Peach. Accordingly, on their respective 1995 tax returns, PNC did not claim a deduction for the eliminated debt, but H.K. Peach did. Petitioner and Pomeroy, each in his capacity as a 50-percent shareholder of H.K. Peach, claimed for 1995 a bad debt deduction of $196,398 (1/2 of $392,796). Respondent in the notice of deficiency issued toPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011