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On their 1999 Federal income tax return, petitioners claimed
on Schedule C, Profit or Loss From Business, a $10,000
depreciation deduction and a section 179 expense deduction with
respect to the pay phones.
Petitioners claimed a $4,772 tax credit, with respect to the
pay phones, on Form 8826, Disabled Access Credit, that was
attached to their 1999 Federal income tax return. For purposes
of claiming this credit, petitioners reported that they had
$10,000 of eligible access expenditures during 1999.
Alpha Telcom grew rapidly through its pay phone program but
was poorly managed and ultimately operated at a loss. On August
24, 2001, Alpha Telcom filed for bankruptcy under chapter 11 of
the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern
District of Florida. The matter was later transferred to the
U.S. Bankruptcy Court for the District of Oregon on September 17,
2001. On November 20, 2001, petitioners filed a proof of claim
in the bankruptcy court in the amount of $10,816.76, representing
the $10,000 that they had invested, plus 7 months of payments at
$58.34 per pay phone that they had not received from ATC as of
the claim date. The bankruptcy matter was dismissed on September
10, 2003, by motion of Alpha Telcom. The bankruptcy court held
that it was in the best interest of creditors and the estate to
dismiss the bankruptcy matter so that proceedings could continue
in Federal District Court, where there was a pending receivership
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