Joseph P. and Marilyn Schneller - Page 10

          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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