- 14 -14
after the check-kiting scheme collapsed and the bank incurred
losses.
For a transaction to be deemed a loan (and thus nontaxable),
the parties must have intended, at the time the transaction was
entered, that the money advanced be repaid. Moore v. United
States, supra at 978; Commissioner v. Makransky, 321 F.2d 598, 600
(3d Cir. 1963), affg. 36 T.C. 446 (1961); Leaf v. Commissioner, 33
T.C. 1093, 1096 (1960), affd. 295 F.2d 503 (6th Cir. 1961); Kreimer
v. Commissioner, T.C. Memo. 1983-672. The converse is also true:
When a taxpayer acquires earnings, lawfully or
unlawfully, without the consensual recognition, express
or implied, of an obligation to repay and without
restriction as to their disposition, "he has received
income which he is required to return, even though it may
still be claimed that he is not entitled to retain the
money, and even though he may still be adjudged liable to
restore its equivalent."
James v. United States, supra at 219 (quoting North Am. Oil Consol.
v. Burnet, 286 U.S. 417, 424 (1932)).
With respect to the case at hand, from the inception of
petitioner's check-kiting scheme in 1980 or 1981 through the day
the scheme collapsed in July 1988, Irvington Federal never
consented to petitioner's overdraws. See Romer v. Commissioner,
supra. Indeed, Mr. Ottey, Irvington Federal's president, testified
that neither he nor the bank was aware of the check-kiting scheme
until petitioner notified them of it in July 1988. And no evidence
was introduced to contradict this testimony. Thus, it is clear
that no loan agreement was made between petitioner and Irvington
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