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with the Zephyr purchase. With respect to this bad debt
deduction, PKV&S reported that $1,516,246 was attributable to the
$1,516,246 promissory note’s being uncollectible. On its
consolidated income tax return for 1991, PKV&S reported that
PK Ventures had imputed interest payments from PKVI LP under
section 7872 totaling $100,661.
g. 1992
The reviewed financial statements of PKVI LP for the year
ended December 31, 1992, indicate that PK Ventures, as PKVI LP’s
sole limited partner, continued to transfer funds to PKVI LP
during 1992. Note 4 to these financial statements stated the
following:
At December 31, 1991, the general partner,
P K Ventures, Inc. forgave advances totaling
$1,516,246. At December 31, 1992, the Partnership owed
the limited partner $335,448 in the form of demand
notes at 9% interest. These notes cannot be repaid if
such payment causes defaults with regard to other debt
agreements. Interest of $10,645 was incurred but not
paid during 1992 related to these notes.
On the Balance Sheets included in these financial statements,
$335,448 for “Notes payable to limited partner” was listed as a
current liability.
On the Consolidated Statements of Cash Flows included in
PKV&S’s audited consolidated financial statements for the year
ended December 31, 1992, there was no amount listed for “Advances
to limited partnership” under the “Investing activities” section.
Note 3, “Due From Limited Partnership”, to these financial
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