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Income Tax Keyed to Bankman
Gilbert v. Commissioner
Citation:
552 F.2d 478 (2d Cir. 1977)Facts
Petitioner was the president of E.L. Bruce Company, Inc. (Bruce), a lumber supply company, and was attempting to complete the acquisition of another lumber company, Celotex Corporation (Celotex). Petitioner had personally borrowed a significant amount of money to purchase Celotex shares and induced some of his associates to purchase shares as well by guaranteeing them against any loss. After a decline in the stock market, a margin call was initiated against Petitioner to cover the Celotex shares purchased by him and his associates. Petitioner lacked the personal funds to meet the margin and so instructed the secretary of Bruce to use corporate funds instead. Petitioner immediately notified several members of the Bruce board of his activities but did not seek official approval from the board. Petitioner also went to Bruce’s outside counsel and they instructed him to draft promissory notes, secured by his assets, to cover the value of the unauthorized withdrawals. After Petitioner informed the other members of the board of his unauthorized withdrawal, a formal meeting was held where the board demanded and received Petitioner’s resignation. The board, however, accepted assignment of the promissory notes. The merger of Bruce and Celotex ultimately fell apart and the Internal Revenue Service filed tax liens against Petitioner for the value of the unauthorized funds he withdrew from Bruce.
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