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real property business activity in Hawaii. Petitioner also
received advances from its parent corporation, Seiyo, as well as
another related company, Taiyo Development, a Japanese
corporation. The advances received from Seiyo and Taiyo
Development were reflected on petitioner's books, records, and
tax returns as payables to affiliates. These advances were
utilized for working capital to develop projects, to pay
outstanding debts owed to financial institutions, and to exploit,
maintain, and hold the Ginter and Gomes properties.
During the taxable year 1988, Taiyo Development made
advances to petitioner which were not evidenced by promissory
notes or other written instruments. Although the records in
which the 1988 advances were shown did not expressly reflect a
stated rate of interest, Seiyo had instructed petitioner to
accrue interest at a certain rate on its books.
At the end of the 1988, 1989, 1990, and 1991 fiscal years,
petitioner had outstanding bank loans with third-party banks, in
the aggregate amounts of $12,722,465, $15,440,132, $13,479,595,
and $5,548,809, respectively. During the period under
consideration, petitioner paid down several of the loans due to
third-party banks. The loans were evidenced by promissory notes
executed by petitioner.
During the taxable years 1989, 1990, and 1991, Seiyo and
Taiyo Development advanced the following amounts to petitioner:
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