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with a total value of approximately $40,000. These items were
placed in the auto dealership's used car inventory, and were
deemed to be assets on the company's books. As part of the
$806,000 capital requirement, petitioner executed a note in favor
of the auto dealership for approximately $150,000. At the end of
the first year of the business, petitioner paid off this note
from a bonus of $236,000 that he received from the auto
dealership.
The additional $400,000 needed to meet the $806,000 capital
requirement was to be borrowed from Golden State Sanwa Bank
(Sanwa Bank). In a July 9, 1986, letter setting forth Sanwa
Bank's terms and conditions for the capitalization loan (cap
loan), petitioner is denominated as "Borrower" and the auto
dealership as the "Guarantor". The stated purpose of the loan is
for "Permanent Working Capital".
On March 2, 1987, Sanwa Bank entered into a business loan
agreement with petitioner for the cap loan. The $400,000
promissory note contains the statement that the loan is "To
assist with investment in auto dealership to meet permanent
working capital needs of enterprise." Petitioner is shown as the
borrower, and his occupation is listed as owner of the
dealership. On the same date, a Sanwa Bank corporate resolution
reflects that the auto dealership guaranteed the repayment of
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