-29-
the loan account on January 1, 1990, before the addition of the
amount at issue, was $483,144.
The record does not establish that petitioners' income was
sufficient to cover all of their personal living expenses and
also to permit them to accumulate sufficient assets to repay the
transferred amount. Rather, the ever-increasing reported loan
balance is an indication that petitioners' annual income was not
sufficient to allow them to maintain their lifestyle and repay
their obligations. Therefore, petitioners have not shown that
there was a reasonable expectation that they could have repaid
the loan from their annual income.
Notwithstanding petitioners' insufficient income as a source
of repayment, a review of petitioners' tax returns for the years
at issue indicates that they owned substantial rental property
which could have been used to repay the amount at issue. There
is no indication in the record, however, that the corporation
would or could have required petitioners to sell or mortgage
those assets for that purpose.
On the record before us, petitioner has failed to establish
that he reasonably believed that he would be able to repay the
amount at issue on demand.
8. Records of Assumption
The only records relating to the assumption at issue are the
journal entries.
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