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controlled by Mr. Bell. On March 2, 1988, Hansa
Finance transferred $110,000 to Group M Construction,
Inc., a Washington corporation owned by petitioner
(from 45 to 50 percent during the years at issue) and
his brothers (from 50 to 55 percent during the years at
issue). On March 7, 1988, Hansa Finance transferred
$17,084.46 back to Aldergrove.
Petitioner made no additional payments to
Aldergrove on the $400,000 “obligation” prior to filing
his petition in this case on July 8, 1991. He made two
additional payments after this time. On December 26,
1991, petitioner transferred $25,000 to Aldergrove. On
December 18, 1992, petitioner issued a check for
$250,000 to Aldergrove and a check for $212,369 to
“Ihatsu Fudosan, Ltd. or Aldergrove Investment”. Both
checks were deposited into an Aldergrove account over
which petitioner had signature authority.
Neither of these additional payments had economic
substance. At this time, petitioner's right to
exercise his SAR's [stock appreciation rights] in GML
was unrestricted. The contribution to Aldergrove
increased the value of both petitioner's and GML's
partnership interest in Aldergrove. Thus, it also
increased the fair market value of GML's stock and
petitioner's SAR's. Petitioner exercised control over
all Aldergrove partnership matters by virtue of his
90-percent voting interest. Numerous other
transactions also support the conclusion that funds
held in Aldergrove were used by and benefited
petitioner personally, including other “loans” to
Group M Construction and Chestnut Grove Investments
(also partially owned by petitioner) made through Hansa
Finance. We find, therefore, that none of the payments
made by petitioner to Aldergrove in “repayment” of a
purported $400,000 loan had economic substance.
Petitioner argued at trial and on brief that
Mr. Bell had the ability to remove principal from GML
or Aldergrove, thus reducing the value of petitioner's
SAR's and placing Aldergrove funds beyond petitioner's
control. Mr. Bell apparently did make such a transfer
only once. However, even in this instance, the bulk of
the funds removed were immediately transferred to
Group M Construction and later back to Aldergrove. As
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