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b. Other Income
Generally, WRI did not make any payments of cash or property
on the principal or interest it owed to Hersco. Yearend journal
entries in the books of WRI and corresponding journal entries in
the books and records of Hersco stated that WRI had paid
principal and interest and that there were simultaneous “loan
backs” from Hersco to WRI. No evidence was offered regarding the
terms of those "loan backs".
c. Guaranteed Payment
The guaranteed payment reported on Hersco's 1988 partnership
return was for accrued interest payable to Eicher on Hersco's
indebtedness to him. The amount was not paid in cash or
property. The "payment" was made only by increasing Hersco's
indebtedness to Eicher.
2. Eicher's 1988 Tax Return, Investment Income, and
Expenses
Eicher claimed a deduction for investment interest expense
of $76,466 on his 1988 tax return. He also reported the
following amounts of net investment income and expenses:
Item Amount
Interest income $77,808
Dividend income 2,919
Investment expenses (34,452)
Net investment income $46,275
Interest income included the $73,122 guaranteed payment from
Hersco to Eicher.
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Last modified: May 25, 2011