KTA-Tator Inc. - Page 1

                                    108 T.C. No.8                                     

                               UNITED STATES TAX COURT                                

                           KTA-TATOR, INC., Petitioner v.                             
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 21013-95.            Filed March 11, 1997.                  
                    P, a closely held corporation, advanced funds to                  
               its shareholders.  The advances were used to pay                       
               expenses relating to construction projects and were not                
               subject to written repayment terms.  After each project                
               was completed, amortization schedules were prepared and                
               the shareholders began repaying the advances.  Prior to                
               the shareholder's repayments, P did not report interest                
               income from the advances.  Held:  P, pursuant to sec.                  
               7872, I.R.C., has interest income from below-market                    
               demand loans it made to its shareholders.                              

               Kenneth B. Tator (an officer), for petitioner.                         
               Michael A. Yost, Jr., for respondent.                                  

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