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OPINION
FOLEY, Judge: By notice dated September 27, 1995,
respondent determined deficiencies in petitioner's Federal income
taxes as follows:
Year Deficiency
1992 $10,443
1993 1,828
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure. The issue for decision is whether petitioner,
pursuant to section 7872, has interest income from loans it made
to its shareholders. We hold that it does.
Background
The facts have been fully stipulated under Rule 122 and are
so found. At the time the petition was filed, petitioner's
principal place of business was in Pittsburgh, Pennsylvania.
During the years in issue, petitioner provided various
services within the coatings industry, including consulting,
engineering, inspection, and lab analysis. Kenneth B. Tator is
the president of petitioner, and he and his wife (the Tators) are
its sole shareholders.
In 1991, the Tators began two construction projects. The
first project involved the expansion of petitioner's Pittsburgh
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