Scofield v. Commissioner
Opinion
Decision will be entered under Rule 155.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, JUDGE: Respondent determined deficiencies in petitioners' income taxes and additions to tax as follows:
| Additions to tax | ||||
| Sec. | Sec. | Sec. | ||
| Year | Deficiency | 6651(a)(1) | 6653(a)(1)(A) | 6653(a)(1)(B) |
| 1985 | $ 56,672 | -- | -- | 1 |
| 1986 | 6,343 | $ 18,577 | $ 5,511 | 2 |
| 1987 | 90,373 | 23,940 | 4,788 | -- |
| 1988 | 148,173 | 7,409 | -- | -- |
| Additions to tax | |||
| Sec. | Sec. | Sec. | |
| Year | 6653(a)(1) | 6653(a)(2) | 6661 |
| 1985 | $ 2,843 | 3 | $ 14,115 |
| 1986 | -- | -- | -- |
| 1987 | -- | -- | 22,319 |
| 1988 | 7,409 | -- | 21,078 |
After concessions, the issues for decision are:
(1) Whether petitioners may deduct $750,000 petitioner-husband paid in 1988 to settle civil litigation related to his guarantee of the debt of Northeast Cellulose, Inc. (Northeast), claims of creditors of Northeast, and his bankruptcy proceedings. We hold that they may not deduct the portion (50 percent) of the settlement payment attributable to petitioner's guaranty of Northeast's line of credit because *632his dominant motive for making the guaranty was to protect his investment in Northeast. We also hold that they may deduct the portion (50 percent) attributable to claims of Northeast's creditors (other than the bank to which petitioner made the guaranty), subject to the 2-percent limit in section 67, because petitioner's payment to settle claims of Northeast's creditors other than the bank originated in his conduct as an officer or employee of Northeast and in action taken by him as an investor-shareholder of Northeast.
(2) Whether petitioners may deduct legal expenses of $10,243 in 1986, $59,352 in 1987, and $104,156 in 1988. We hold that they may, subject to the 2-percent limit in section 67.
Unless otherwise indicated, section references are to the Internal Revenue Code. Rule references are to the Tax Court Rules of Practice and Procedure.
Some of the facts have been stipulated and are so found.
Petitioners Stephen F. scofield (petitioner) and Nancy E. Scofield (Mrs. Scofield) are married and lived in Marietta, Georgia, when they filed their petition. Petitioners have been married sin
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Decision will be entered under Rule 155.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN, JUDGE: Respondent determined deficiencies in petitioners' income taxes and additions to tax as follows:
| Additions to tax | ||||
| Sec. | Sec. | Sec. | ||
| Year | Deficiency | 6651(a)(1) | 6653(a)(1)(A) | 6653(a)(1)(B) |
| 1985 | $ 56,672 | -- | -- | 1 |
| 1986 | 6,343 | $ 18,577 | $ 5,511 | 2 |
| 1987 | 90,373 | 23,940 | 4,788 | -- |
| 1988 | 148,173 | 7,409 | -- | -- |
| Additions to tax | |||
| Sec. | Sec. | Sec. | |
| Year | 6653(a)(1) | 6653(a)(2) | 6661 |
| 1985 | $ 2,843 | 3 | $ 14,115 |
| 1986 | -- | -- | -- |
| 1987 | -- | -- | 22,319 |
| 1988 | 7,409 | -- | 21,078 |
After concessions, the issues for decision are:
(1) Whether petitioners may deduct $750,000 petitioner-husband paid in 1988 to settle civil litigation related to his guarantee of the debt of Northeast Cellulose, Inc. (Northeast), claims of creditors of Northeast, and his bankruptcy proceedings. We hold that they may not deduct the portion (50 percent) of the settlement payment attributable to petitioner's guaranty of Northeast's line of credit because *632his dominant motive for making the guaranty was to protect his investment in Northeast. We also hold that they may deduct the portion (50 percent) attributable to claims of Northeast's creditors (other than the bank to which petitioner made the guaranty), subject to the 2-percent limit in section 67, because petitioner's payment to settle claims of Northeast's creditors other than the bank originated in his conduct as an officer or employee of Northeast and in action taken by him as an investor-shareholder of Northeast.
(2) Whether petitioners may deduct legal expenses of $10,243 in 1986, $59,352 in 1987, and $104,156 in 1988. We hold that they may, subject to the 2-percent limit in section 67.
Unless otherwise indicated, section references are to the Internal Revenue Code. Rule references are to the Tax Court Rules of Practice and Procedure.
Some of the facts have been stipulated and are so found.
Petitioners Stephen F. scofield (petitioner) and Nancy E. Scofield (Mrs. Scofield) are married and lived in Marietta, Georgia, when they filed their petition. Petitioners have been married since 1981 and have four sons.
Petitioner graduated from Syracuse *633University in 1968 with a degree in economics. He started to work in the newsprint industry that year. He worked for Great Northern Paper Co. (Great Northern) from 1968 to June 1972, primarily in sales positions. Petitioner then worked for about 4 years as sales manager for Eastern Color Printing Co. (ECP), a printing business.
B. PETITIONER'S BUSINESSES
1. UNIDYNE
Petitioner left ECP around 1976 to start a company which he named Unidyne, Inc. (Unidyne). Unidyne was in the paper recycling business. Lawrence McKee (McKee) was also associated with Unidyne. Unidyne stopped doing business in 1977.
2. NORTHEAST CELLULOSE, INC.
In 1977, petitioner (and apparently McKee) started a company called Northeast Cellulose, Inc. (Northeast). Northeast brokered, bought, and sold newsprint. Northeast sold commercial printing paper, magazine paper, and newsprint to retailers and printers.
Petitioner was an officer and director of Northeast. He owned 50 percent of the stock of Northeast, a Massachusetts corporation. Petitioner invested about $4,000 for his Northeast stock. McKee was Northeast's other 50 percent stockholder and was president of Northeast.
Petitioner worked about 25 hours per week for Northeast *634in 1978 and 1979. Among his other duties, petitioner maintained Northeast's customer and mill contacts. Northeast did not pay a salary to petitioner in 1979. 1
Northeast earned a commission on its sales. Paper mills typically paid a commission to Northeast of 3 percent, after freight and related costs. At first, Northeast acted as a broker. Eventually, however, it took title to the paper, which required it to establish lines of credit.
In 1978 and 1979, Northeast established a line of credit with Guaranty Bank & Trust Company (the bank) in Massachusetts. McKee signed a guaranty dated March 3, 1978, for the line of credit. Northeast used its assets as collateral for the loan. In December 1979, the bank lent about $1.2 million to Northeast on the line of credit. Petitioner signed a guaranty with the bank around January 11, 1980. Northeast used its line of credit with the bank to take title to paper when it was advantageous to do so.
Northeast had retained earnings of $107,058.15 on December 31, 1978, and $183,747.33 on December 31, 1979. At the end of 1979, petitioner submitted a financial *635statement to the bank in which he estimated that the value of his interest in Northeast as a going concern was about $1 million.
Zayre Corp. (Zayre) was a customer of Northeast. Northeast contracted to sell paper to Zayre. Consolidated Newsprint, Inc. (CNI) produced and sold paper for newsprint and newsprint advertising and contracted to regularly sell products to Northeast.
3. SIGMA GENERAL, INC.
Petitioner owned all of the stock of Sigma General, Inc. (Sigma), a New Hampshire corporation he formed in 1978. Sigma placed orders for printing advertising material to be distributed by newspapers. In 1979, Sigma placed orders totaling about $10 million. Petitioner estimated that the value of his interest in Sigma was about $500,000 early in 1980. 2 At that time, Sigma had four or five employees. From late 1980 to 1981, petitioner was Sigma's only employee. Sigma was sometimes a customer of Northeast.
Sigma paid petitioner a salary of $143,333 in 1979.
Sigma ceased doing business in September 1981.
4. NORCEL, INC.
In May 1980, petitioner incorporated a company called Norcel, Inc. (Norcel). He was Norcel's only officer, director, *636and shareholder.
5. WINGFOOT CORP., LTD. AND ALAR, LTD.
Petitioner was a stockholder and officer of Wingfoot Corp., Ltd. (Wingfoot), a Canadian corporation. He did not earn a significant amount of income from Wingfoot in 1978 and 1979.
Petitioner started a company in Hamilton, Bermuda, named Alar, Ltd., at a time not stated in the record.
1. CESSATION OF NORTHEAST'S BUSINESS ACTIVITY
Petitioner resigned as an officer from Northeast on June 20, 1980. In mid-1980, Northeast ceased doing business.
2. CREDITORS' AGREEMENT
On August 11, 1980, the bank, CNI, Zayre, and Meredith- Burda, Inc. appointed Virginia Norkevicius (Norkevicius) as nominee to receive and hold Northeast's assets. Norkevicius was a vice president of the bank. For purposes of distributing the remaining assets of Northeast, Northeast's creditors agreed, in August 1980, that Norkevicius would distribute money that she recovered as follows: the first $200,000 was to be distributed to the bank, and the next $1.6 million was to be given 50 percent to the bank and 50 percent to the other parties. This agreement was based on how much Northeast owed to each party. Norkevicius had collected $726,000 when *637the agreement was signed.
After Northeast and Sigma collapsed, petitioner began working for a company that Mrs. Scofield had formed called Calta, Inc. (Calta), a Massachusetts corporation. Calta was in the printing business. When petitioners moved to New Hampshire in 1981, she reincorporated Calta in New Hampshire. Petitioner worked for Calta from 1981 to 1983 and received a salary of about $5,000 a month.
Petitioner incurred legal expenses as a defendant in lawsuits brought by the bank, Northeast, CNI, Zayre, and Norkevicius (as nominee), and in related bankruptcy proceedings.
1. PETITIONER'S STATE COURT PROCEEDINGS
On June 12, 1982, the bank, Northeast, CNI, Zayre, and Norkevicius (as nominee), sued McKee, petitioner, Timothy Samway, Robert E. Davis, Francoise Sterling, Sigma, and Wingfoot in the Superior Court of Worcester County, Massachusetts (docket no. 82- 22879). The plaintiffs alleged that petitioner and the others had: (a) Conspired to terminate the business of Northeast and to appropriate for themselves the business, goodwill, and assets of Northeast; (b) created false invoices; (c) caused Northeast to breach contracts *638with suppliers and thereby lose future profits; (d) taken equipment and funds of Northeast; and (e) made misrepresentations to Zayre which caused it to buy and immediately pay for a million pounds of premium paper.
In the complaint, the plaintiffs alleged that Northeast owed them $2,958,720.24 when it stopped doing business. They alleged that, at the time the complaint was filed, Northeast owed $561,530.53 to the bank, $406,812.39 to Zayre, and $946,132.33 to CNI. The complaint does not explain why those amounts totaled less than the plaintiffs alleged Northeast owed when it stopped doing business. The plaintiffs alleged that petitioner was liable for Northeast's debts to the bank because he and McKee had signed guarantees.
The bank also sued petitioner, McKee, McKee's wife, and Northeast in the Superior Court of Worcester County, Massachusetts, for the indebtedness of Northeast on the line of credit (docket No. 82-22880). We sometimes refer to these cases as the Northeast litigation.
Petitioner denied the allegations and made counterclaims, cross-claims, and third-party claims. He contended that the bank, without the approval of Northeast or knowledge of petitioner, let McKee *639borrow money in Northeast's name that McKee used for highly speculative investments unauthorized by Northeast and for McKee's personal benefit. He also claimed that McKee and one of the bank's officers intentionally misrepresented Northeast's financial condition to induce petitioner to sign the guaranty to the bank, and he sought indemnification from McKee and the bank officer.
Petitioner initially contended during the Northeast litigation that he had not guaranteed Northeast's indebtedness to the bank and that he was not liable for payment on the guaranty. However, in 1984, petitioner acknowledged that he had signed the guaranty in January 1980 and was liable to the bank for payment on the guaranty.
Robert Williams represented petitioner in the Northeast litigation. These cases were settled in 1988. See paragraph I-E-3, below.
2. PETITIONER'S BANKRUPTCY CASE
In September 1983, petitioner filed a petition in the United States Bankruptcy Court for the District of New Hampshire under chapter 7 of the U.S. Bankruptcy Code, seeking a discharge of all of his debts. On the schedules filed with the Bankruptcy Court, petitioner listed personal property having a value of $7,000 and no real property. *640Petitioner listed the following debts in his bankruptcy petition: (a) Warner & Stackpole ($7,000); (b) Haussermann, Davison & Shattuck ($6,910); (c) Northeast Cellulose ($18,879,963); (d) Guaranty Bank & Trust Co. v. Lawrence McKee, Stephen F. Scofield and Kay L. McKee ($80,000); (e) Granby Press v. Sigma General, Inc. ($178,000); (f) Calta, Inc. ($66,697); (g) Guaranty Bank & Trust Co. for suit filed in 1982 (unknown amount); and (h) Alar, Ltd. (unknown amount).
Northeast and Norkevicius filed a complaint seeking to deny petitioner's discharge (the adversary proceeding). They alleged that petitioner should be denied a discharge under
3. THE SETTLEMENT AGREEMENT
On April 7, 1988, Norkevicius (as nominee), the bank, CNI, Zayre, and petitioner reached a settlement. In the settlement, the parties resolved all disputes and claims in the Northeast litigation and the adversary proceeding. Petitioner agreed to pay to the plaintiffs $750,000, consisting of $300,000 when he executed the agreement and $450,000 by May 16, 1988. The parties agreed that, if petitioner timely made the payments, the plaintiffs would dismiss their claims and release all defendants in the Massachusetts action (except McKee), and petitioner would dismiss his counterclaims, cross-claims, and third-party claims. The plaintiffs *642agreed that they would not object to any pleading, action, or motion by petitioner to obtain a discharge in bankruptcy or any other relief which he deemed appropriate in the bankruptcy proceedings.
Petitioner paid $750,000 to the plaintiffs in the Northeast litigation in 1988. On May 16, 1988, the Bankruptcy Court approved the settlement agreement, dismissed the adversary proceeding with prejudice, set aside the order for relief from the voluntary petition, and dismissed the voluntary petition without prejudice. The Bankruptcy Court filed its order on May 26, 1988. Petitioner did not obtain a discharge in bankruptcy.
Neither Northeast nor Sigma did business in 1988. Petitioner worked in the paper and printing business before and after these cases were settled.
4. PETITIONERS' LEGAL FEES AND FEDERAL INCOME TAX RETURNS
a. 1986
Petitioner paid legal fees of $10,243 relating to the Northeast litigation and the adversary proceeding. Petitioners deducted those fees on the Schedule C for petitioners' paper and printing business filed with their 1986 Federal income tax return. They reported no gross receipts and claimed a net loss of $10,243 on Schedule C.
b. 1987
Petitioner paid legal fees *643in 1987 of $34,083 for the Northeast litigation and $25,269 for the bankruptcy proceedings. The bankruptcy legal fees included fees for: A conference held by the attorneys with Mrs. Scofield, the attendance by attorneys at a deposition of Mrs. Scofield, compilation of bankruptcy pleadings and memos, research regarding discharge and pleadings in bankruptcy, attorney-client privilege in bankruptcy, defenses to objection to discharge, fraudulent conveyance/alter ego exposure, and reviewing Judge Lavien's ruling on alter ego and concealment of assets.
Petitioners deducted those fees ($59,352) on the Schedule C for petitioner's paper and printing business filed with their 1987 return. They reported no gross receipts and claimed that they had a net loss of $59,352 on Schedule C.
c. 1988
Petitioner paid legal fees of $70,843 for the Northeast proceedings and $33,313 in 1988 for the bankruptcy proceedings. The bankruptcy legal fees included fees for: Attorneys attending the trial on the adversary proceeding in January 1988; research on defenses to bankruptcy discharge under
Petitioners attached a Schedule C for petitioner's paper and printing business to their 1988 tax return. On it, petitioners deducted legal and professional expenses of $104,156 and a bad debt loss of $750,000. They reported no income on the Schedule C and a net loss of $854,156. Petitioners attached to their 1988 tax return a copy of the settlement agreement which released them from liability for the Northeast litigation and adversary proceeding.
A. WHETHER PETITIONERS MAY DEDUCT $750.000 THAT PETITIONER PAID TO SETTLE CIVIL LITIGATION AND PETITIONER'S BANKRUPTCY PROCEEDINGS
1. WHETHER PETITIONER'S SETTLEMENT *645PAYMENT WAS A BUSINESS BAD DEBT
Petitioners contend that they may deduct as a business bad debt or as a business expense $750,000 they paid in 1988 to settle the Northeast litigation and petitioner's bankruptcy proceedings.
A taxpayer may deduct debts that become worthless in the taxable year. Sec. 166(a)(1). Section 166 distinguishes between business and nonbusiness bad debts. A business bad debt is a debt created or acquired in connection with the taxpayer's trade or business or a debt the loss from the worthlessness of which is incurred in the taxpayer's trade or business. Sec. 166(d)(2). Nonbusiness bad debts of taxpayers other than corporations are short- term capital losses. Sec. 166(d)(1)(B).
A taxpayer may deduct as a business bad debt a payment it makes to discharge the taxpayer's obligation as a guarantor if: (a) The taxpayer was engaged in a trade or business when he or she made the guaranty, and (b) the guaranty was proximately related to the conduct of that trade or business.
2. PETITIONER'S DOMINANT MOTIVE FOR GUARANTEEING NORTHEAST'S LINE OF CREDIT
a. BACKGROUND AND THE PARTIES' CONTENTIONS
Whether a guaranty is proximately related to the taxpayer's trade or business depends on the taxpayer's dominant motive for becoming a guarantor when he or she made the guaranty.
Petitioners contend that they may deduct $750,000 as a bad debt for payments petitioner made to settle claims against him as guarantor of loans the bank made to Northeast. Petitioners argue that petitioner's dominant motive in guaranteeing the debt was to secure or protect his trade or business of being an employee of Northeast and his employability and reputation in the newsprint industry rather than to protect his investment in Northeast. Respondent contends that petitioner provided the guaranty primarily to protect his investment in Northeast.
b. WHETHER PETITIONER'S DOMINANT MOTIVE FOR THE GUARANTY WAS TO BENEFIT HIS TRADE OR BUSINESS OR TO PROTECT HIS INVESTMENT IN NORTHEAST
Northeast paid no salary to *648petitioner in 1979. He guaranteed the $1.2 million line of credit to Northeast on January 11, 1980, about the time that he estimated that his investment in Northeast as a going concern was worth $1 million. We think petitioner's willingness to work 25 hours a week for Northeast for no salary shows that he wanted capital appreciation from Northeast, not income.
Petitioner argues that he guaranteed Northeast's line of credit so that it would continue to operate, and that he would have been substantially compensated by Sigma for work he was doing for Northeast. Petitioner did not show why his guaranty of Northeast's line of credit enhanced his ability to earn a salary. Northeast paid him no salary, and petitioner did not show why Sigma could or would pay him a salary because of his guaranty. Sigma was sometimes a customer of Northeast, but the record does not show that Sigma depended on Northeast to the extent that Sigma should expend funds to ensure that Northeast survived.
Petitioners argue that it would not have been reasonable for petitioner to guarantee a $1.2 million line of credit to protect a $4,000 cash investment. Petitioner cites three cases in which courts have held *649that the dominant motive of a taxpayer who personally guaranteed a loan to a company that far exceeded his investment in the company was not to protect his investment:
Petitioners argue that petitioner made the settlement payment to reestablish his reputation in the paper and printing industry so that he could continue to earn money from it. Petitioners' argument misses the mark. We consider whether a taxpayer's dominant motive in becoming a guarantor is proximately related to his or her trade or business at the time of the guaranty rather than when a payment in discharge is made.
Petitioners cite
c. CONCLUSION
Petitioner's dominant motive for guaranteeing the bank line of credit to Northeast was to enhance his investment in Northeast, not his trade or business. Thus, petitioners may not deduct as a business bad debt that part of the settlement payment attributable to petitioner's guaranty.
3. WHETHER PETITIONERS MAY DEDUCT THE SETTLEMENT PAYMENT UNDER SECTION 162
Petitioners argue in the alternative that they may deduct under section 162 their *651payments to settle the Northeast litigation and the adversary proceeding. A taxpayer may deduct ordinary and necessary expenses paid or incurred in carrying on a trade or business. Sec. 162(a). Petitioners argue that
Respondent argues that, under section 263(a), petitioner may not currently deduct the settlement payment because the plaintiffs in the Northeast litigation alleged that he misappropriated both tangible and intangible property. We disagree. The creditors' claims against petitioner arose in the ordinary course of their business with Northeast, not in the process of acquiring or disputing who had title to a capital asset. In defending against the claims, petitioner was not defending or perfecting his title to property. See
Respondent argues that petitioners may not deduct the settlement payment as an ordinary and necessary expense because the plaintiffs in those cases alleged that petitioner embezzled from Northeast. We disagree. Zayre, CNI, and the other creditors' allegations that petitioner had embezzled funds were a small part of the Northeast litigation. Petitioner denied and defended against these allegations. *653Petitioner did not admit that those allegations were correct as part of the settlement or otherwise. He settled the Northeast litigation to repay Northeast's creditors (Zayre and CNI) for debts Northeast incurred in the ordinary course of its trade or business and to settle the bank's claim against him as a guarantor for Northeast. We conclude that petitioner's payment to Northeast's creditors other than his payment for the guaranty was an ordinary and necessary expense.
The claims brought against petitioner for actions he took while he was an officer of Northeast and the allegations in the adversary proceeding originated in petitioner's conduct of his duties as an officer and employee of Northeast. The settlement payment reasonably and proximately related to his serving as an officer of Northeast. Petitioner's payment to settle claims other than that relating to his guaranty to the bank was a trade or business expense. Thus, petitioners may deduct under section 162 that part of the payment petitioner made in the Northeast litigation and adversary proceeding to settle the claims of Northeast's creditors other than his payment for the guaranty.
A taxpayer *654may deduct a payment relating to his or her trade or business of being a corporate employee even though the taxpayer made the payment 3 years after the corporation stopped operating.
4. ALLOCATION OF SETTLEMENT PAVMENT BETWEEN GUARANTY AND OTHER CREDITORS' CLAIMS
We apportion petitioner's $750,000 settlement payment between the claims of the bank relating to petitioner's guaranty of Northeast's line of credit and the claims of Northeast's other creditors. The $750,000 was not all paid on the guaranty because, when the complaint was filed, Northeast owed only $561,530 to the bank. Northeast's nominee had already collected *655at least $726,000 on Northeast's debts when Northeast's creditors agreed to allocate recoveries. Under that agreement, 4 the bank could recover no more than $375,000 (50 percent of $750,000). We hold that petitioner may deduct 50 percent of the settlement payment for the claims of Northeast's creditors other than the bank, but must treat as a short- term capital loss 50 percent of the payment for the claims of the bank relating to petitioner's guaranty.
Petitioners paid legal fees of $10,243 in 1986, $59,352 in 1987, and $104,156 in 1988 and deducted them on Schedules C of their tax returns. Respondent determined and contends that petitioners may not deduct $25,269 in 1987 and $33,313 in 1988 of these fees as ordinary and necessary business expenses under section 162 because petitioner paid them in connection with his bankruptcy. Respondent also determined *656that legal fees of $10,243 in 1986, $34,083 in 1987, and $70,843 in 1988 were deductible from adjusted gross income subject to the limitations of section 67, which allows miscellaneous itemized deductions to the extent that they exceed 2 percent of adjusted gross income. Petitioners argue that they may deduct the legal fees relating to their bankruptcy because it resulted from Northeast's business failure.
Petitioners may deduct legal expenses if the origin of the claims in the Northeast and adversary proceedings related to petitioner's trade or business or the production of income and was not primarily personal.
Respondent argues that the legal fees relating to petitioner's bankruptcy were nondeductible personal expenses. Sec. 262. Respondent also argues that petitioners may not deduct attorney's fees related to the adversary *657proceeding because they involved a challenge to petitioner's discharge for alleged prepetition fraudulent conveyances. See
We disagree with respondent's contention that Collins controls here. The origin of the claim is not necessarily established by allegations made to support a claim.
Respondent argues that petitioners' reliance on
Petitioner's bankruptcy legal expenses were attributable to his business or investment since Northeast's failure forced him to seek bankruptcy protection. The debts *659listed in his bankruptcy petition related almost exclusively to Northeast. The plaintiffs in the adversary proceeding were creditors of Northeast. Fees paid to file petitioner's bankruptcy petition and legal fees paid to defend claims against petitioner in the adversary proceeding had their origin in petitioner's conduct as an employee and investor- shareholder of Northeast and thus related to activities engaged in by petitioner to produce income. Secs. 162, 212(1). We hold that petitioners may deduct their legal fees in 1986, 1987, and 1988 relating to petitioner's Northeast litigation and adversary proceeding subject to the limits of section 67.
Decision will be entered under Rule 155.
Footnotes
1. Fifty percent of the interest due on $ 6,343.↩
2. Fifty percent of the interest due on $ 90,373.↩
3. Fifty percent of the interest due on $ 56,672.↩
1. The record does not indicate whether Northeast paid a salary to petitioner in any other year.↩
2. The record does not indicate how petitioner used this estimate.↩
3.
11 U.S.C. sec. 727(a) (1994) provides, in part:Sec. 727 . Discharge(a) The court shall grant the debtor a discharge, unless --
* * * * * * *
(3) the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor's financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case;
* * * * * * *
(5) the debtor has failed to explain satisfactorily, before determination of denial of discharge under this paragraph, any loss of assets or deficiency of assets to meet the debtor's liabilities; * * * ↩
4. The creditors' agreement provided that the bank would receive the first $200,000 collected by Northeast's nominee, and 50 percent of any other money collected. Northeast's nominee collected at least $726,000, of which the bank presumably received the first $200,000.↩
1997 T.C. Memo. 547 (Scofield v. Commissioner) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.