John F. and Tracy L. Barford, et al. - Page 8

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          position was not substantially justified.  Swanson  v.                      
          Commissioner, 106 T.C. 76, 94 (1996); Sokol v. Commissioner, 92             
          T.C. 760, 767 (1989).  Notwithstanding petitioners' ability to              
          convince respondent to make "overwhelming" concessions, we                  
          believe respondent's position with regard to the section 482                
          adjustment nevertheless had a reasonable basis in law and fact.             
               Section 1.482-2(a)(1), Income Tax Regs., provides where one            
          member of a group of controlled entities makes a loan to another            
          member of the same group, and charges no interest, respondent               
          may make appropriate allocations to reflect an arm's-length                 
          interest rate.  This is in order to prevent evasion of taxes or             
          to clearly reflect income.  Sec. 482.                                       
               In the instant case, Marco Oil made loans to RAM Drilling              
          and TMC Farms.  They were all members of the same group of                  
          controlled entities.  The loans had an initial interest rate of             
          14 percent.  That interest rate was subsequently eliminated, and            
          the loans of the principal balance and subsequent advances                  
          accrued no interest.  In 1983, Marco Oil assigned the notes to              
          TMC Resources.  Upon the liquidation of TMC Resources (the                  
          parent corporation that controlled, among other subsidiaries,               
          Marco Oil, Ram Drilling, and TMC Farms), the notes were assigned            
          to petitioners, who, on that same date, assigned the notes to               
          TMC Enterprises, a wholly owned partnership owned equally by the            

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