- 17 -
account balances of $2 and $1,873, respectively, while their
respective interest payments were approximately $55,000. In
response to the Commissioner's argument that there was
insufficient commingling, we stated:
The partnerships here acquired control of the loan
proceeds as evidenced by their deposit in the
partnership checking accounts outside the lender's
domain. That the partnerships exercised their control
over the funds for only a brief period of time does not
convert the transactions into discounted loans. [Id.
at 260.]
In Wilkerson, unrestricted control appears to mean
unrestricted physical or mechanical control in the sense that
there were no physical or mechanical restraints on the borrower's
ability to withdraw borrowed funds for a purpose other than
paying interest.15 Used in this sense, "unrestricted control"
ignores the fact that the borrower may have obligated himself to
use the loan proceeds to pay interest to the lender as a
precondition to the loan, and also ignores the fact that failure
to use loan proceeds for the purpose of satisfying a current
interest obligation would result in a default and likely
foreclosure proceedings.
Two Courts of Appeals have rejected this application of an
"unrestricted control" rule. Wilkerson v. Commissioner, 655 F.2d
15We found as a fact that the partnerships had "unrestricted
physical control" over the loan advances when they were deposited
to the partnerships' accounts. Wilkerson v. Commissioner, supra
at 244, 249.
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