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c. Sale of Grantor Trust Notes for $1
In December 1987, IRA held a receivable of $507,648 due from
IFI. IRA transferred the receivable back to IFI in exchange for
all of IFI’s assets, which included receivables due from
Ballard’s and Lisle’s grantor trusts as well as receivables due
from Ballard ($196,648) and Lisle ($28,284), respectively. IRA
then sold certain of the receivables due from Ballard’s and
Lisle’s grantor trusts (with a face value of approximately
$384,000) for $1 each to MAF, Inc. Morrison, MAF’s president,
admitted that MAF engaged in the transactions merely as an
accommodation to Kanter. In addition, after writing down the
value of the receivables due from Ballard and Lisle to $84,889
and $12,185, respectively, IRA treated these receivables as bad
debts for which it claimed deductions on its 1987 tax return.
After the IRS began its examination, Kanter contacted
Ballard and Lisle to discuss repayment of their debts. These
discussions were merely postexamination window dressing.
d. IRA Loans to Kanter
At the end of 1989, IRA’s records reflected loans to Kanter
totaling $600,000. There is no evidence that any principal or
interest was paid on these loans.
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