- 34 -
PKV&S claimed a $664,888 bad debt deduction on its
consolidated income tax return for 1990 for cash transfers that
PK Ventures, TBPC, and TPTC had made to Zephyr and for the cash
transfers that PK Ventures had made to the nine Zephyr purchasers
other than Rose. With respect to this bad debt deduction,
$64,888 was attributable to the cash transfers that PK Ventures
and/or its subsidiaries had made to Zephyr in prior years. PKV&S
did not attach to this return an explanation for claiming this
bad debt deduction.
B. Internal Revenue Service (IRS) Determinations
The IRS determined that PKV&S was not allowed to claim a bad
debt deduction of $953,652 on its consolidated income tax return
for 1989 for cash transfers that PK Ventures and/or its
subsidiaries had made to Zephyr because it had not established
that a true debtor-creditor relationship was intended by these
transfers. Furthermore, the IRS determined that, if a debt had
been intended, PKV&S had not established that such debt had
become worthless during 1989. The effect of this determination
was to reduce the net operating loss carryover that PKV&S could
report on its consolidated income tax return for 1990 (as
amended) from $1,023,245 to $69,593. Accordingly, the IRS
increased PKV&S’s taxable income by $953,652 for 1990.
The IRS also determined that PKV&S was not allowed to claim
a bad debt deduction of $64,888 on its consolidated income tax
Page: Previous 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 NextLast modified: May 25, 2011