- 17 -
expenses and the use of the loan proceeds were not provided to
the examining agent, and petitioner repeatedly failed to respond
adequately to requests for records and documents. Moreover, we
invited petitioner to move to reopen the record for the sole
purpose of offering additional evidence regarding the San
Francisco Loan interest deduction for the period of March 4, 1988
to December 31, 1988. The lack of evidence in the record
suggests that respondent reasonably contested the deduction for
this period.
For the Investor Group and Owens loans, we observed that the
interest rates were unknown but found that a reasonable rate of
interest on these notes would be 5-1/2 percent simple interest
per annum. We directed that interest deductions from these notes
were to be recalculated on this basis under Rule 155. Since the
interest rate was unknown and had to be determined by the Court,
and the ending balance for the Investor Group loan was not in
evidence, respondent reasonably contested these deductions as
well.
(c) Our discussion, supra pp. 13-14, as to the substantial
justification of respondent's position regarding depreciation
deductions for 1989 and 1990 is equally applicable to
depreciation deductions that form part of petitioner's net
operating losses for prior years.
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