- 35 -
between a corporation and its sole shareholder. That the
shareholder, in effect, has the sole authority to enforce the
debt against himself certainly raises questions about the
substantive significance of formal debt instruments and book
entries. Saigh v. Commissioner, supra at 420.
The record herein contains little or no reliable evidence in
support of Georgiou's position. Kolonaki classified the advances
as loans on its books and records, and Georgiou made a small
repayment during the years in issue. These factors are
outweighed by the absence of credible documents that would
substantiate Georgiou's intent to repay the advances at the time
the advances were made. The backdated documents that reflect a
security agreement, maturity date, and an interest rate for the
advances are not reliable. The ceiling on the advances and the
right to enforce the obligations are illusory because Georgiou,
himself, controlled these decisions.
Noticeably absent are promissory notes. A taxpayer's
execution and delivery to the corporation of promissory notes or
other debt instruments in connection with, and in close temporal
proximity to, the corporate disbursements is evidence that they
are loans. See Baird v. Commissioner, T.C. Memo. 1982-220. No
promissory notes were executed for the advances from the Loan to
Shareholder account from 1980 through the years in issue.
After considering the factors that distinguish loans from
dividends, we conclude that Georgiou has failed to satisfy his
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