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the expected source of repayment, Huntington's contemporaneous
records indicate that it was looking both to petitioner and to MMS
for repayment. Huntington's internal reports prepared in
connection with the bank's decisions to increase the authorized
principal of the Miller/Huntington Loan in February 1993 and
January 1994 both listed the primary source of repayment as
"Personal cash flow [of petitioner] and/or funds from Miller
Medical Systems, Inc." Moreover, when the authorized principal
amount of the Miller/Huntington Loan was increased for the second
time in January 1994, Huntington sought and obtained a second
mortgage on the residence of petitioner's parents, suggesting that
Huntington continued to rely on petitioner personally as a source
of repayment. In short, the use of proceeds and source of
repayment factors do not persuade us that the loan from Huntington
to petitioner should be disregarded, and MMS treated as borrowing
directly from Huntington rather than petitioner.
We also attach little consequence to petitioners'
inconsistent tax reporting of the interest arising from the
Miller/Huntington and MMS/Miller Loans. Petitioners failed to
report any interest income from the MMS/Miller Loan in 1993, but
they reported $109,674 of such interest in 1994. Since the
MMS/Miller Loan and Miller/Huntington Loan had mirror terms for
interest, any interest income petitioner received on the
MMS/Miller Loan would have been offset by petitioner's interest
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