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to the extent of petitioners’ bases in Sidal attributable to (1)
$1 million wire transfers from Paulan to each petitioner and from
each petitioner to Sidal on November 24, 1997 (the wire transfer
payments), and (2) a $200,000 capital contribution by each
petitioner to Sidal on July 11, 1997.
Description of the Loans
On 11 occasions during the 1997-2000 period, Paulan
transferred funds directly or indirectly (via the wire transfer
payments) to Sidal.6 The bank loans that constituted the source
of the funds, the transactions themselves, and the manner in
which they were reflected in the financial statements of Paulan
and Sidal are described as follows.
1997
Paulan Bank Borrowings
July 10 - $3,550,550.00 ($3.6 million less $49,450.00 in
closing costs) from the Merchants Bank of Terre Haute, Indiana
(Merchants Bank) (the $3.6 million Merchants Bank loan).
6 On their individual returns for 1997, petitioners each
claimed a debt basis of $1 million in Sidal attributable to the
wire transfer payments, and they deducted suspended Sidal losses
from prior years. As noted in the text, respondent did not
challenge those deductions. The amounts of basis attributable to
those payments that carried over to 1999 are not certain. A
basis schedule for 1993-99, prepared by Michel, indicates a
remaining 1999 basis from those payments of $5,065 for each
petitioner, but petitioners’ 1999 returns indicate a remaining
basis of $5,064 for Al and $34,554 for Sid. As discussed infra,
respondent denies the existence of any post-1998 carryover basis
under sec. 1366(d)(1)(B) attributable to the wire transfer
payments.
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