- 22 -
the lender. We found that the 1-percent partner's control over
the future of the partnership was too fundamental and significant
to conclude that the partnership's control over the funds in its
account was unrestricted. Id. at 1192.
We think that similar fundamental and significant factors
restricted White Tail's control over the $1,587,310.46 that John
Hancock wired to White Tail's account on December 30, 1980.
White Tail had specifically agreed to borrow this amount to
satisfy its interest obligation in order to prevent a default.
Use of the funds for any other purpose would have breached the
terms of its agreement with John Hancock and would have resulted
in White Tail's default and a likely end to its business
operations.18 In Wilkerson, we chose not to consider the impact
of a default and its consequences on whether the borrower had
unrestricted control over funds that it borrowed.19 See
Wilkerson v. Commissioner, 70 T.C. at 244-245. However, in Menz,
18The existence of such an agreement has been held to
restrict the borrower's control over borrowed funds. See Franco
v. Commissioner, T.C. Memo. 1992-577.
19As we stated in Menz v. Commissioner, 80 T.C. at 1191-
1192:
we chose not to address what impact a default would
have had, and found as fact that the borrower had been
given "unrestricted physical control over the loan
advance at the time it was deposited in the
[borrower's] account." 70 T.C. at 244. On that basis,
we held that the taxpayer's situation in Wilkerson was
not meaningfully distinguishable from the Burgess and
Burck cases and found that there had been the requisite
"payment" of interest.
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