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after the end of the relevant tax year in order to skirt the
application of section 7872. For the reasons which follow, we
agree with respondent.
Petitioners rely primarily on section 1.7872-13(c), Proposed
Income Tax Regs., 50 Fed. Reg. 33568, 33569 (Aug. 20, 1985), as
support for their position. Petitioners point to language in
section 1.7872-13(c), Proposed Income Tax Regs., that provides:
If a demand loan does not have a constant outstanding
principal amount during a period, the amount of forgone
interest shall be computed according to the principles
set forth in paragraph (b) of this section, with each
increase in the outstanding loan balance being treated
as a new loan and each decrease being treated as first
a repayment of accrued but unpaid interest (if any),
and then a repayment of principal. [Emphasis added.]
We note that, while proposed regulations do constitute a
body of informed judgment which courts may draw on for guidance,
Frazee v. Commissioner, 98 T.C. 554, 582 (1992), this Court
accords them no more weight than that given to a litigation
position. See KTA-Tator, Inc. v. Commissioner, 108 T.C. at 102-
103. In any case, petitioners' reliance thereon is misplaced.
Most importantly, petitioners ignore the fact that, contrary
to the underscored language of section 1.7872-13(c), Proposed
Income Tax Regs., no interest "accrued" during the years in
question in this case. Petitioners acknowledge that no
obligation to pay interest had been agreed on or contemplated by
the parties to the loan transactions during 1987 and 1988.
Petitioners nonetheless assert that interest need not be stated
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