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exchange for promissory notes dated as of October 27, 2000. The
promissory notes required the Melniks to repay the loans on or
before October 27, 2001.
The Melniks did not meet the repayment deadline. In January
2002, Bermuda Trust contacted the Melniks to determine whether
they anticipated repaying the $900,000 in loans or whether they
wanted the loans to be treated as trust distributions. Bermuda
Trust strongly recommended that if the Melniks could not repay
the loans and interest in full immediately, they should obtain
tax advice before proceeding. At the time of trial, the loans
from Clend had not been repaid, canceled, or treated as
distributions to petitioners.
As of December 31, 2001, Clend had the following assets:
(1) The stock in Tapuz, which owned the Tapuz property, with a
book value of $1,380,000, (2) $900,000 in promissory notes due
from the Melniks, and (3) approximately $54,000 in cash.
Preparation of Petitioners’ Tax Returns
In anticipation of filing their 1997 Federal income tax
returns, the Melniks, on the recommendation of Mr. Pennoni,
changed their accountant. Adrian Hernandez, a certified public
accountant recommended by Mr. Pennoni, prepared the Melniks’ 1997
29(...continued)
indicate when the notes were executed or who prepared them.
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