-12- ($196,398) of the bad debt flowed through to H.K. Peach (the other half flowing through to Crittenton), and petitioner may deduct only half of that half (in other words, $98,199). Respondent reads PNC’s pretermination financial statements to indicate that petitioner, in his capacity as president of Arbor, believed that the debt was settled before Crittenton’s (and hence PNC’s) termination. In particular, respondent observes, PNC recorded in those statements a $600,000 note receivable that it received from Lakeland in connection with the debt settlement agreement. Respondent makes no mention of the terms of redemption in the debt settlement agreement but considers the reporting of the $600,000 note receivable to be dispositive of this issue. On the basis of the facts and circumstances of this case, we hold for petitioner. We conclude from our reading of the debt settlement agreement that the $392,796 was not forgiven until after the redemption of Crittenton. The parties to that agreement went to great lengths to memorialize their understanding that this redemption was a condition precedent to the settlement of the debt. Respondent has not alleged that the debt settlement agreement was a sham or that the terms thereof should be disregarded by the Court. We respect the express termsPage: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Next
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