- 8 -
what appears to be the same ink as the GAPS notes. Each of the
notes bears a typed-in issuance date and due date and a stamped
cancellation date, and purports to bear interest at 5.25
percent.4 All the JJM notes are signed by petitioner as
president of JJM. On Schedule L of its 1988 and 1989 U.S.
corporation income tax return forms, JJM showed liabilities as of
the beginning and end of each year in the following amounts:
Schedule L Entry as of: 1/1/88 12/31/88 1/1/89 12/31/89
Loans from stockholders $14,735 $10,000 $10,000 $10,000
Notes payable in less than 1 yr. --- 9,0009,000 15,208
Notes payable in 1 yr. or more--- 54,381 54,381 44,381
In 1989, JJM paid a total of $92,620 to petitioner or third
parties for petitioner's or his family's benefit. See supra note
3. In 1989, JJM had $22,257 of earnings and profits available
for distribution to shareholders. See infra pp. 23-27.
Some of the corporate payments to, or on behalf of,
petitioner were also deducted by the corporations as ordinary and
4Copies of the notes assembled as petitioners' Exhibit 108
also show the following:
NOTE NUMBER AMOUNT ISSUANCE DUE DATE CANCELED
1 $40,715.00 12/31/87 12/31/88 12/31/88
2 14,735.00 12/31/87 12/31/88 12/31/88
3 19,000.00 12/31/88 12/31/89 12/31/89
4 54,381.12 12/31/88 12/31/89 12/31/89
5 15,208.00 12/31/89 12/31/90 12/31/90
6 44,381.00 12/31/89 12/31/90 12/31/90
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