Carl E. Jones and Elaine Y. Jones - Page 15

                  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            charged him interest on the withdrawn amounts, petitioner never                           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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