Jerry S. Payne - Page 8

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          The acquisition took the form of a stock purchase whereby                   
          Helmle’s stock was transferred to petitioner in exchange for $10            
          in cash plus a $500,000 promissory note on which petitioner never           
          made any payments.  In the earlier case involving petitioner’s              
          1987 and 1988 taxable years, we found as a fact that the March              
          15, 1988, agreement was a sham and that petitioner received the             
          stock of 2618 not by purchase, but as payment in satisfaction of            
          the more than $500,000 in legal fees owed to him by 2618 and by             
          Helmle.8  The agreement was conditional, to become effective if             
          and when TABC granted 2618's application for a mixed beverage               
          permit.  That condition was satisfied when, in August 1988, a               
          settlement agreement was reached between TABC and the club                  
          pursuant to which TABC agreed to and did issue the permit to the            
          club effective September 20, 1988.  Prior to that date,                     
          petitioner had become president of 2618.                                    
          Transfer of the Club to JKP Enterprises, Inc. (JKP)                         
               On February 20, 1988, petitioner entered into an agreement             
          (the February 20 agreement) with the owners of the building in              
          which the club operated whereby it was agreed that (1) petitioner           
          had replaced 2618 as primary lessee by virtue of his February 15,           
          1988, acquisition of 2618's leasehold interest in the premises,             

               8  Petitioner did not contest our characterization of the              
          transaction as a payment in-kind for overdue legal fees.  Rather,           
          he contended that the 2618 stock was worthless at the time he               
          received it.  See Payne v. Commissioner, 224 F.3d 415, 419 (5th             
          Cir. 2000), revg. T.C. Memo. 1998-227.                                      

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