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the insurance premiums in the event of the policyholder’s death
or termination. Petitioner assigned his rights under these
policies to AHERF in return for its funding of his Key Employees
Shared Option Plan (KEYSOP) account, a pension/deferred
compensation account. The KEYSOP account itself was recoverable
by AHERF in the event AHERF became insolvent or filed for
bankruptcy.
At the time of his termination by AHERF, petitioner’s
KEYSOP deferred compensation account carried a balance of
$2,062,425. Also at the time of his termination, petitioner had
a loan from PNC Bank, which was cosigned by AHERF, for
approximately $2.2 million. After petitioner was terminated, PNC
Bank called the loan due. AHERF issued a check, payable to PNC
Bank and petitioner jointly, for $1,506,170.97 using funds from
petitioner’s KEYSOP account to repay the loan. One month after
petitioner’s termination, AHERF filed for bankruptcy and
reclaimed the remaining funds in petitioner’s KEYSOP account.
C. Business Deductions
Petitioner is the sole shareholder of GTG, an S corporation.
GTG’s business involves buying and selling raw materials
worldwide. Petitioner’s Forms 1040, U.S. Individual Income Tax
Return, for 1999 and 2000 claimed $78,563 and $53,245,
respectively, in business expense deductions for meals, travel,
and entertainment related to GTG. Petitioner submitted records
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