- 7 -
Rept. 98-861, supra at 1018, 1984-3 C.B. at 272 (emphasis added).
Each of petitioner's advances was a transfer resulting in a right
to repayment. In essence, each transfer was an extension of
credit and therefore a loan. See Frazee v. Commissioner, supra
at 589 (stating that "The term 'loan' under section 7872 is
interpreted broadly to include any extension of credit.").
Accordingly, we conclude that the loan requirement is
satisfied and that each advance is a separate loan for purposes
of section 7872.
II. Below-Market Loan Requirement
To determine if the below-market loan requirement is
satisfied, we must ascertain whether the loan is (1) a demand or
term loan and (2) subject to a below-market interest rate. See
sec. 7872(e)(1).
A. Demand or Term Loan
Below-market loans fit into one of two categories: Demand
loans and term loans. Sec. 7872(e)(1); H. Conf. Rept. 98-861,
supra at 1018, 1984-3 C.B. at 272. A demand loan includes "any
loan which is payable in full at any time on the demand of the
lender." Sec. 7872(f)(5). A term loan is "any loan which is not
a demand loan." Sec. 7872(f)(6).
The determination of whether a loan is payable in full at
any time on the demand of the lender is a factual one. Loans
between closely held corporations and their controlling
shareholders are to be examined with special scrutiny. Electric
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