- 38 -
thereto. There were no limits on the amount that Elvin could
withdraw from YOC. There were no fixed payment dates, nor was
there a requirement that Elvin make repayments to YOC. No
interest was charged on the debit balance in the account until
December of 1985 after Elvin was notified of respondent's
criminal tax investigation. No formal dividends were declared
and paid to Elvin despite the annual increases in YOC's retained
earnings, and Elvin completely controlled the business affairs
and day-to-day operations of YOC.
Petitioners argue that Elvin always had an intent to repay
the debit balance in the YOC-Elvin Account, that some repayments
were made, that Swisher's minority interest in YOC acted as a
check on the amounts Elvin could withdraw from YOC, that the lack
of loan documents and promissory notes is not significant, that
Elvin began to pay interest in December of 1985 when section
78722 was enacted, and therefore that the net increase each year
in the YOC-Elvin Account represented loans, not constructive
dividends.
Petitioners also argue (with regard to the $325,939 that was
used by YOC in 1986 for the purchase of real property on which to
locate the new Chrysler-Plymouth dealership to be owned by NRDC)
that the $325,939 represented a loan by YOC to NRDC and was
2 Sec. 7872 requires interest income to be imputed to a
taxpayer in certain circumstances involving loans with below
market interest rates.
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