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approximated $2.5 million. Evans, on the other hand, made no
capital contributions to the companies.
Petitioner did not know how much Evans owed him, but
testified that he expected to be repaid for the advances he made
for Evans’ 50-percent equity ownerships in each of the companies
when the companies became profitable. Petitioner also testified
that he fully expected Evans to “work his tail off” at the Clinic
to repay him even if the companies failed. No promissory note
exists for the advances. Evans made no principal payments to
petitioner on the alleged loans, but petitioners did report
interest income from Evans of $37,000 and $25,000 on their 1995
tax return.
Demise of the Companies
Petitioner decided to scale back operations in light of the
international financial environment and because the companies had
never become profitable. Sometime in 1995, petitioner instructed
Evans to stop making certain investments and, in particular, to
stop making investments in Russia. Evans defied petitioner’s
instruction and continued to invest in Russia. Petitioner fired
Evans in 1995.
Settlement Agreement
Petitioner and the Clinic filed a complaint against Evans in
the Jefferson Circuit Court in Louisville, Kentucky, on January
10, 1996 (the Lawsuit). Petitioner and the Clinic sought
repayment of $1,354,387 that petitioner claimed was used to make
capital contributions to the companies on Evans’ behalf. The
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