- 11 -
3-Koam concedes that sometime after March of 1991, it received
the $90,000 back from Inkax, purportedly in the form of a loan.
Respondent argues, however, that the $90,000 transferred
back to 3-Koam fails to exhibit any indicia of a loan, and in
substance is actually a repayment of the proceeds originally
disbursed by 3-Koam to Inkax pursuant to the alleged research and
development agreement. See Frierdich v. Commissioner, T.C. Memo.
1989-393, affd. 925 F.2d 180 (7th Cir. 1991) (factors to consider
in deciding whether a bona fide loan exists between related
parties).
On brief, petitioner argues that we need not decide this
point, because whether or not Inkax lent the $90,000 to 3-Koam in
1991 has no bearing on whether 3-Koam actually incurred the
research and development expenses; and therefore it may properly
deduct the expense in 1990. See sec. 461(a) (all events test).
For the reasons just discussed supra at note 5, we disagree.
The record shows that at the time 3-Koam and Inkax entered
into the purported loan transaction, 3-Koam never intended to
repay Inkax, and Inkax never intended to enforce monetary
payment. See Karme v. Commissioner, supra. 3-Koam did not issue
5(...continued)
Lincoln Sav. & Loan Association, 403 U.S. 345, 355 (1971)). The
question of the appropriate accounting treatment may be answered
only when the transaction is determined to be legitimate. A sham
transaction is not entitled to favorable tax treatment; therefore
3-Koam's accounting method is irrelevant.
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