Raymond K. and Minerva R. Mason - Page 1

                                 T.C. Memo. 1997-352                                  

                               UNITED STATES TAX COURT                                

                   RAYMOND K. AND MINERVA R. MASON, Petitioners v.                    
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 9998-96.                     Filed July 31, 1997.           

                    Ps, shareholders of a closely held corporation,                   
               received certain advances of funds from the corporation                
               in 1987 and 1988 which they used for personal and                      
               investment expenses.  The loans were not evidenced by a                
               note or security agreement, and no interest rate was                   
               agreed to or set by the parties during these years.  Ps                
               also made certain repayments on the loans in 1987 and                  
               1988 which were reflected as reductions of principal on                
               the financial ledgers of both Ps and the corporation.                  
                    R determined that Ps were the recipients of below-                
               market loans from the corporation and, among other                     
               things, adjusted their income to reflect distributions                 
               pursuant to sec. 7872, I.R.C.  Held:  Ps have dividend                 
               income in an amount equal to the forgone interest from                 
               the below-market demand loans.  KTA-Tator, Inc. v.                     
               Commissioner, 108 T.C. 100, 106-107 (1997), applied.                   
               Held, further, additions to tax under sec. 6661,                       

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