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January 1, 1988, or as of December 31, 1988, on its 1988 Schedule
L. JJM showed no loans from stockholders as of January 1, 1988,
or as of December 31, 1988, on its 1988 Schedule L. On the 1989
Schedule L, GAPS showed loans from stockholders of zero on
January 1, 1989, and $8,281 as of December 31, 1989. On the 1989
Schedule L, JJM showed loans from stockholders of $10,000 on
January 1, 1989, and $10,000 as of December 31, 1989.11 The
Schedule Ls do not evidence sufficient loans to cover the
payments made by GAPS and JJM to and for petitioner.12
11In the statutory notice, respondent generously reduced the
amounts of corporate payments by the amounts of the stockholder's
loans listed on GAPS's and JJM's 1989 pro forma corporate income
tax return schedule L. Petitioners provided no substantiation
for these amounts beyond the pro forma returns.
12John Pritten testified that petitioner's "loans" are
reflected on the Schedules L under headings different from "Loans
from stockholders". He testified that the headings "Mortgages,
notes, bonds payable in less than 1 year" and "Mortgages, notes,
bonds payable in 1 year or more" also reflect petitioner's
"loans". Although it is true that these headings list
substantially more than the stockholder loans category and that
some of the amounts listed on the Schedules L equal the face
amounts of the promissory notes, we do not find this testimony
persuasive. Each of the promissory notes has a 1-year maturity
date. This contradicts the distinction between notes payable in
1 year or more and notes payable within less than 1 year. For
example, GAPS note No. 6 for $31,637 is exactly the same amount
as the GAPS Schedule L entry under notes payable in less than 1
year for 12/31/88 although note No. 6 is payable in one year.
Also, neither Mr. Pritten nor petitioner provided a sufficient
business reason for separating any shareholder loans into the
three different categories. We find it much more plausible that
Mr. Pritten and petitioner created the notes in preparation for
trial and had to rely on the other Schedule L categories for the
appropriate amounts because the amounts actually stated in the
shareholder loans category were not sufficient to cover the
amounts of the loans claimed.
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