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After the debt conversion, Cap Corp. remained liable to
petitioner for $500,000 of the original $2.7599 million debt. On
its 1996 Federal return, Cap Corp. did not report cancellation of
indebtedness income from the debt conversion transaction.
D. Petitioner’s 1997 Advances to Cap Corp.
After December 2, 1996, Crispin took over the management of
Cap Corp., Cap Group (Cap Corp.’s subsidiary), and the
consolidation activity with respect to the JetFleet I and
JetFleet II partnerships. Shortly after the December 2, 1996,
debt conversion transaction, Koehler no longer managed Cap Corp.
Koehler continued to manage CKS, Cap Corp.’s former subsidiary
that became a wholly owned subsidiary of CKH in the debt
conversion. Sometime during the summer of 1997, Koehler formally
resigned his positions as a director and manager of Cap Corp.,
and he transferred some of his Cap Corp. stock to Crispin, making
Crispin the majority shareholder of Cap Corp.
Although Crispin knew that Cap Corp. continued to be
insolvent after the debt conversion transaction, he caused
petitioner to transfer additional funds to Cap Corp. during 1997.
11(...continued)
oral agreement that CKH would receive a $2 million portion of any
NSI consulting fee. Petitioner further maintains that, as of the
Dec. 2, 1996, date of the debt conversion, consummation of the
desired divestment (and NSI’s payment of a consulting fee to
petitioner) was still uncertain and could have fallen through.
Petitioner argues that, at that time, petitioner’s receipt of an
NSI consulting fee was not even a “bird in the bush”.
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