-12-
Respondent determined that during 1989, the reported increases
(debits) to the loan account totaled $537,683. The account was
increased for such diverse items as cash withdrawals of $209,223
that were recorded as loans,5 Development's assumption of
petitioner's $98,753 of indebtedness to Winterchase, and $39,038
of capitalized interest.6
Petitioner also recorded items that decreased the account
(credits). Petitioner had credited the account for, among other
items, $237,269 of cash that petitioner paid into the company,
the reclassification of $116,395 of the loans as petitioner's
salary, and petitioner's assumption of Development's
indebtedness. Respondent disallowed $490,402 of these credit
items, and allowed credits totaling $391,195, which respondent
applied to reduce the beginning balance of the loan account, not
to offset the increases recorded during 1989.
Respondent determined that the alleged shareholder loans
were not bona fide but actually were disguised distributions.
Accordingly, respondent reduced the loan account balance for
$39,038 of capitalized interest and increased petitioners' gross
income for $307,976, the amount of the disguised distributions.
5
This amount includes political contributions of $1,500 that
Development paid on petitioner's behalf.
6
Development charged petitioner interest on the alleged
loans, and when petitioner did not pay the interest due,
Development capitalized it by debiting the loan account for the
unpaid amount.
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011