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We have held on more than one occasion that in the closely
held corporation context, loan repayments that commenced only
after a taxpayer had notice of an IRS audit go far to weaken the
payments as persuasive evidence of a preexisting intention of
paying on schedule, or at all. See, for example, Tollefsen v.
Commissioner, 52 T.C. 671, 680 (1969), affd. 431 F.2d 511 (2d
Cir. 1970); Piekos v. Commissioner T.C. Memo. 1982-602; Granzotto
v. Commissioner, T.C. Memo. 1971-106; see also Williams v.
Commissioner, 627 F.2d 1032, 1034 (10th Cir. 1980) (repayment of
taxpayer notes in stockholder control situation not made until
after taxpayers were aware that their returns were to be audited,
thus constituting a mere formalism of no great significance),
affg. T.C. Memo. 1978-306.
Petitioners apparently wished to keep their commitments to
their financially troubled consolidated group of corporations as
ephemeral as possible. Although Ernst & Young advised
petitioners in February, 1990, that the Capital Note would be
treated as a nonadmitted asset for purposes of computing NALICO's
capital-to-premium ratio under State insurance company
regulations, the record reflects no effort by petitioners to
rectify the situation, although their very substantial net worth
exclusive of their NAC Corporation holdings would make it seem
probable that they could have done so. From this, and from
petitioners' and NAC Corporation's general indifference to
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