-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 terms
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011