- 21 - there is no evidence that any interest was ever paid.10 In addition, the rate of interest on the notes did not change, although quoted interest rates were changing during the 3-year period when the notes purported to be outstanding. This is not evidence of normal business practice. There are no source documents evidencing a loan. Both petitioner and his accountant referred to internal accounting records and work papers when asked how each of the 16 loan balances was calculated. Petitioner never offered these internal accounting documents into evidence. Petitioner stated that these records were available but that he would have to find them. Petitioners never produced them. There are many inconsistencies between the categories and amounts shown on the Schedules L that petitioner said reflected the loan balances outstanding at yearend between him and the corporations and the face amounts of the corporations' notes to him. The corporate Schedules L do not show significant loans from stockholders. GAPS showed no loans from stockholders as of 10GAPS claimed an interest deduction of $30,632 on its 1989 pro forma tax return. Respondent disallowed this entire amount, and GAPS has conceded this issue. Even if this interest was paid, there is no evidence that it was paid to petitioner for these purported loans. Even if the interest was paid to petitioner for these purported loans, petitioners did not report these payments as ordinary income. If the deduction was based upon an accrual of interest payable to petitioner, the deduction would properly be disallowed under sec. 267(a)(2) by reason of the relationship between petitioner and GAPS, as defined in sec. 267(b)(2).Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Next
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