CMA Consolidated, Inc. & Subsidiaries, Inc. - Page 75

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          The financial statement that was part of Cap Corp.’s 1996 Federal           
          return reflects that Cap Corp.’s assets were just under $151,000            
          and its liabilities were well over $4 million.  Cap Corp.’s 1996            
          return also reflected a net loss of $641,600 for Cap Corp. and              
          its subsidiaries.  As of November 30, 1997, Cap Corp. owed                  
          petitioner $1,859,135, consisting of the $500,000 outstanding               
          debt along with $1.257 million of additional advances made during           
          1997, plus interest.  During 1997, petitioner made advances to              
          Cap Corp. of $55,000 on January 31, 1997; $50,000 on April 30,              
          1997; and $1.152 million on July 31, 1997.                                  
               Cap Corp. (through Koehler) issued petitioner a December 1,            
          1996, promissory note to cover the above debt.  Among other                 
          things, Cap Corp. promised to pay on or before November 30, 1997,           
          all outstanding principal and 10 percent interest to petitioner.            
          E.  Petitioner’s 1997 Ordinary Loss and Bad Debt Deduction;                 
          Petitioner’s 1998 AeroCentury Stock Transaction                             
               On its 1997 return, petitioner claimed a $1,859,135 bad debt           
          deduction consisting of:  (1) The $500,000 Cap Corp. debt not               
          assumed by CKH in the debt conversion transaction; (2) the                  
          $1,257,000 of advances to Cap Corp. during 1997; and (3) $102,135           
          of interest owed petitioner by Cap Corp.  Petitioner did not                
          claim a deduction with respect to CKH’s $2.259 million assumption           
          of Cap Corp.’s debt or the conversion of the Cap Corp. debt into            








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