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and financial records. Kubota was one of four individuals who
operated and managed petitioner. He worked with Michio Ito, a
representative of Seiyo who supervised petitioner's Hawaiian
operation. Seiyo, through Ito, instructed Kubota with regard to
the advances, to accrue certain interest amounts on petitioner's
books and records.
Kubota had difficulty differentiating petitioner's real
estate development from its real estate investment activity.
Overall, Kubota believed that petitioner would not have had
sufficient funds to pay its bank debt and develop its properties,
as well as maintain and hold the Ginter and Gomes properties, if
it had not obtained the advances from Seiyo. Kubota also
believed that petitioner was willing, at any point, to sell the
Ginter and Gomes properties provided that a bona fide offer was
received. Kubota thought that the advances from Seiyo and Taiyo
Development to petitioner were not considered a priority item for
repayment.
Petitioner's accountant, Tsukamoto, included the advances
from Seiyo and Taiyo Development as liabilities on Schedule L of
petitioner's Federal income tax returns. In Tsukamoto's
professional judgment petitioner did not have the financial
ability to pay interest and amortize principal on the advances.
The advances to petitioner from Seiyo and Taiyo Development
enabled it to make payments on principal and interest to third-
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