Reginald Maurice Wise and Shannon Rae Wise - Page 14

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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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