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paid $88,000 in cash and gave Hersco a $1,380,000 mortgage (the
Hersco mortgage) on the land. Respondent contends that, for
1988, Hersco may not include in gross income interest from the
Hersco mortgage or capital gain from the sale, and WRI may not
deduct interest expense related to the Hersco mortgage because
WRI generally made no principal and interest payments on the
Hersco mortgage.5 Respondent also argues that the 1984 sale was
a sham. Petitioners disagree and argue that: (1) The Wise-
Eicher group had enough funds to pay principal and interest, (2)
Hersco constructively received the principal and interest
payments, and (3) the sale was bona fide.
1. Hersco's Capital Gain and Interest Income
Respondent contends that Hersco may not include in gross
income $189,014 of capital gain or $100,115 of interest income.
The capital gain represents the amount of installment sale gain
petitioners contend Hersco should report from the 1984 sale. The
interest represents the income and liability accounts shown on
the books of Hersco and WRI, respectively.
Petitioners contend that, because Wise and Eicher controlled
four entities, including WRI and Hersco, they had the power to
compel payment of principal and interest, and therefore Hersco
constructively received the capital gain and interest income.
5The $23 difference in the amount of interest Hersco
included and the amount WRI deducted is due to WRI's under
accrual for 1987.
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