Dallas R. Hall - Page 2

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                                  FINDINGS OF FACT                                    
               Many facts were stipulated.  We incorporate herein by this             
          reference the parties’ stipulations of fact and the exhibits                
          submitted therewith.  We find the stipulated facts accordingly.             
          Petitioner resided in Ketchum, Idaho, when his petition was                 
          filed.                                                                      
               Petitioner is a licensed real estate and mortgage broker who           
          conducts a money-lending operation (operation) through his sole             
          proprietorship (sole-proprietorship) and his wholly owned                   
          corporation (corporation).  In the operation, third party                   
          investors (investors) lend money to the sole-proprietorship, the            
          sole-proprietorship lends money to the corporation, and the                 
          corporation lends money to real estate developers and other                 
          contractors (collectively, developers).                                     
               Petitioner filed a 1994 Form 1040, U.S. Individual Income              
          Tax Return.  Petitioner reported on Schedule C, Profit or Loss              
          From Business, of that return that the sole-proprietorship had              
          gross receipts of $16,807, total expenses of $102,989, and a net            
          loss of $86,182.  Petitioner claimed as one of the expenses                 
          “Other Interest” of $77,872 for interest paid to the investors.             
          Petitioner claimed as the other expenses “bad debts”, “car and              
          truck expenses”, “depreciation”, “legal and professional                    
          services”, “travel”, “meals and entertainment”, and “other                  
          expenses”.                                                                  






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