-7-
both before and after the writeoff of the 12 accounts. Before the
writeoff neither petitioners nor their corporation gave any
indication that the accounts would not be repaid. Since the date
of the writeoff, Delivery has made no demands for repayment of the
account balances involved, nor has Delivery in any other way
asserted that petitioners still owe the balances. Nor have
petitioners in any way indicated that they still consider
themselves indebted to the corporation for those balances.
On Delivery's 1990 tax return (filed under the name KTM,
Inc.), the $527,428 writeoff is characterized as the writeoff of
previous dividends. Delivery's accountant (Mr. Arthur) knew that
only $51,065 had been taxed as dividend income to petitioners
during the audit of years 1982 through 1984. Mr. Arthur also knew
that interest had been imputed on the remaining loan balances. And
he was aware that characterizing the amounts as dividend income was
advantageous to petitioners. The purported dividend income
involved years now closed by the statute of limitations.
OPINION
Preliminarily, we note that petitioners claim that
respondent’s notice of deficiency is invalid because it was based
solely on the revenue agent’s arbitrary conclusion that the amounts
written off should not go untaxed. We find this argument to be
without merit. The revenue agent credibly testified that he had
sufficient evidence concerning the distributions at issue to make
his determination. Petitioners offered no evidence to contradict
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