- 33 -
In Baird, this Court also addressed the issue of journal entries
as payments and stated:
Separate treatment of the joint accounts on the books
is not sufficient to support a contrary view in the
light of all the surrounding circumstances, and the
$17,540 debit from the cash journal to "Notes
Receivable" account was simply a shift from one account
to another. There is nothing here to indicate a plan
or intention to repay, and the conduct of the parties
over a period of years supports a contrary view.
[Baird v. Commissioner, 25 T.C. at 394.]
Disregarding the repayments that consisted of journal
entries made in 1991, the repayments are insubstantial in
relation to the advances. Failure to repay an ever mounting loan
balance points to constructive dividends. See Baird v.
Commissioner, T.C. Memo. 1982-220.
Georgiou also relies on the treatment of the advances on the
books and tax returns of Kolonaki to establish that the advances
were loans. Kolonaki recorded the advances in the Loan to
Shareholder account. Although the treatment of the advances is
an important factor to consider, it must be considered in
relation to the other facts that would indicate a loan.
While it is true that the absence of the notes and the
failure to charge or pay interest are not alone
conclusive on the basic issue, it is equally true that
the treatment of * * * [the taxpayers'] withdrawals on
the corporate books as "Notes Receivable" is not
controlling, since it is well settled that book entries
may not be used to conceal realities as a means of
relieving the taxpayer from liability for income taxes.
* * * [Baird v. Commissioner, 25 T.C. at 395.]
Page: Previous 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 NextLast modified: May 25, 2011