-15-
1991
Respondent determined that in 1991, petitioner withdrew
$267,628, all of which had been recorded as increases to the loan
account,9 and that he paid $42,801 to the corporation. Thus,
respondent increased petitioners' 1991 income for capital gains
in the amount of the net distribution, $224,827. In making the
determination, respondent disallowed decreases to the loan
account for unverified payments totaling $56,041 that petitioner
asserts he made on behalf of Development.
Petitioner asserts that the withdrawals he made in 1989,
1990, and 1991 were loans. However, during the years at issue he
never executed any promissory notes in favor of Development for
the funds he withdrew. Furthermore, although the corporation
charged him interest on the withdrawn amounts, petitioner never
actually paid any interest. The unpaid interest was capitalized
to the loan account balance. Development never placed a limit on
the amounts petitioner could withdraw nor specified a repayment
schedule for the withdrawals. Finally, the withdrawals were not
secured or collateralized.
Distributions Versus Loans
We must determine whether petitioner's withdrawals were
bona fide loans, as petitioner contends, or disguised
9 Of the amounts recorded as an increase in the loan account,
$850 was for the transfer of a facsimile machine to petitioner.
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