Oakcross Vineyards, LTD., Dennis D. Groth, Tax Matters Partner - Page 28

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          Generally, Winery's payments to Vineyards for grape purchases               
          were deferred between 1 and 4 years after delivery.                         
               Vineyards permitted Winery to defer payment of the interest            
          accruing on Vineyards' receivables from Winery.  Vineyards                  
          further allowed, or acquiesced in, the control by Winery's                  
          lenders of payments to it of interest and rent.  During each year           
          from 1984 until 1986, Winery began paying to Vineyards some of              
          the interest accrued on Vineyards' receivables from Winery using            
          funds from Winery's line of credit.  Vineyards also made                    
          agreements with Bank of America concerning the amount of interest           
          it was entitled to collect from Winery with respect to the                  
          receivables.  Bank of America, however, as a condition of                   
          renewing Winery's line of credit during late 1986, required that:           
          (1) Payments of interest to Vineyards cease; (2) no further                 
          accruals occur without its consent; and (3) all accrued and                 
          unpaid interest owed by Winery to Vineyards, totaling $79,739, be           
          eliminated from Winery's books.6  The interest eliminated was               
          never paid to Vineyards.  Despite a provision in the Grape                  
          Payment Calculation that called for the payment to Vineyards of             

          6    While petitioner maintains that the interest accrued was               
          eliminated at the insistence of Bank of America, we note that the           
          letter from Bank of America to Winery outlining the terms on                
          which Winery's line of credit would be renewed states that "As              
          Borrower [Winery] has proposed, all existing accrued and unpaid             
          interest owed by Borrower to Guarantors [including Vineyards] is            
          to be reversed and eliminated from Borrower's books by 12/31/86."           
          There is accordingly some question concerning whether the accrued           
          interest was eliminated at the instance of the Bank of America.             

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