- 16 -
We also considered the fact that prepayment of the $377,202 in
interest was an "integral part" of the loan agreement because the
bank would not have made the loan without it. It was clear that
$377,202 of the loan proceeds was advanced for the purpose of
paying interest to the lender.
Faced with essentially the same fact pattern in Wilkerson v.
Commissioner, 70 T.C. 240 (1978), revd. and remanded 655 F.2d 980
(9th Cir. 1981), we followed the reasoning and result of Burck v.
Commissioner, supra.14 Responding to the Commissioner's argument
that the borrowers never had "unrestricted control" over the loan
proceeds, we stated:
We have rejected that same argument where the
lender gave up control of the borrowed funds, the funds
were commingled with the taxpayer's own funds, and then
the commingled funds were used to prepay interest.
Burgess v. Commissioner, 8 T.C. 47 (1947); Burck v.
Commissioner, 63 T.C. 556 (1975), affd. 533 F.2d 768
(2d Cir. 1976). [Wilkerson v. Commissioner, supra at
258].
In Wilkerson, without the loan, the borrowers did not have
sufficient funds with which to satisfy their interest
obligations. Prior to receipt of the loan proceeds used to
satisfy their interest obligations, the borrowers had checking
13(...continued)
(2d Cir. 1976).
14In Wilkerson v. Commissioner, 70 T.C. 240, 259 (1978),
revd. and remanded 655 F.2d 980 (9th Cir. 1981), we stated that
"The Burgess and Burck cases are not meaningfully distinguishable
from the facts before us."
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