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indebtedness to Paz. When the Note was executed in June of 1992,
the Ranch had already been sold. Yet the Note continued to
recite the Ranch as security. Thus Paz remained effectively
unsecured. Petitioner argues that the failure to execute a note
was due to the oversight of his accountants, but we note that
petitioner observed other formalities with respect to title to
the Ranch, such as obtaining his wife's community interest in the
Ranch prior to their divorce. We believe that the failure to
draft or execute a note evidencing petitioner's indebtedness to
Paz for nearly 2 years, and the failure to provide security when
purporting to do so, reveal that both borrower and lender treated
the obligation casually at best. We believe that greater care
would have been exercised in these matters if the purported debt
had been intended as a genuine obligation.
Second, and of most significance, petitioner failed to make
any payments with respect to the indebtedness, even though they
were past due under the terms of the subsequently drafted Note,
until a revenue agent auditing Paz made specific inquiries
regarding the transaction. The Note required annual payments,
commencing 2 years after the July 2, 1990, transfer of the Ranch
to petitioner, namely July 2, 1992. Nonetheless, despite the
fact that the Note had been executed by petitioner in June 1992
after its absence had been discovered, petitioner failed to make
the first payment due 1 month later on July 2, 1992. Petitioner
also failed to make the second payment, due July 2, 1993.
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