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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
petitioners.
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