- 46 -
against other advances due to the shareholder. During
1991, the remaining $400,000 was determined to be
uncollectible and charged to 1991 operations.
PKV&S claimed a $1,916,246 bad debt deduction on its
consolidated income tax return for 1991 for the cash transfers
that PK Ventures, TBPC, and TPTC had made to PKVI LP and for the
cash transfer that PK Ventures had made to Rose in connection
with the Zephyr purchase. With respect to this bad debt
deduction, $400,000 was attributable to the transfer that
PK Ventures had made to Rose in connection with the Zephyr
purchase. There were no amounts separately identified as
interest payments received and/or imputed by PK Ventures from the
Zephyr purchasers on PKV&S’s consolidated income tax return for
1991.
B. As Described in the Roses’ Income Tax Returns
There were no amounts separately identified as interest
payments made and/or imputed by the Roses to PK Ventures on their
joint income tax returns for 1990 or 1991. On their joint income
tax return for 1991, the Roses reported $1,461,372 of
cancellation of indebtedness income. The Roses reported that
$400,000 of this amount was attributable to the transfer that
PK Ventures had made to Rose in connection with the Zephyr
purchase.
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