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continue such transactions. And petitioner agreed to repay the
amounts on demand. Petitioners' accountant (Mr. Luscombe) advised
petitioners that interest-bearing notes should be prepared to
bolster their position that the amounts were loans. Petitioners
maintained that position throughout the audit of their 1982, 1983,
and 1984 returns. Further, the increases in the accounts were not
included in petitioners' income except certain amounts stemming
from the 1982 through 1984 audit.
Petitioners made repayments of more than $300,000 between 1984
and 1990. Repayments are evidence that corporate advances
constitute loans. See Pierce v. Commissioner, 61 T.C. 424, 431
(1974). Repayments suggest that withdrawals were made with an
intent to repay, which supports a finding that the withdrawals were
loans. Miele v. Commissioner, 56 T.C. 556, 567-568 (1971), affd.
474 F.2d 1338 (3d Cir. 1973).
A debt is discharged when it becomes obvious that the debt
will not have to be repaid. Cozzi v. Commissioner, 88 T.C. 435,
445 (1987). Cash withdrawals from a corporation by a stockholder
in the form of loans generally are taxed in the year that corporate
action was taken canceling or charging off such accounts against
surplus. Shephard v. Commissioner, 340 F.2d 27, 30 (6th Cir.
1965), affg. per curiam T.C. Memo. 1963-294. In this case, the
discharge took place in 1990 when Delivery charged off the accounts
against retained earnings. In sum, we hold that as a result of the
1990 writeoff, petitioners realized income from the discharge of
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