- 27 -
outstanding for purposes of section 72(p) despite the fact
that the principal amount of the loan previously has been
deemed distributed and included in the taxpayer's income
under section 72(p). Furthermore, respondent cites no
authority in support of the litigating position taken in
this case, other than a general reference to section
72(p), nor has respondent sought to reconcile the
Commissioner's position in this case with the contrary
position taken in the proposed regulation. Accordingly, we
hold that respondent erred in treating the unpaid interest
that accrued during 1990 and 1991 on all of the loans,
except for the 1986 loans, as additional distributions.
See Chapman v. Commissioner, supra.
Petitioners do not challenge respondent's treatment of
the interest that accrued on the 1986 loans prior to the
time the principal amounts were treated as distributions
under section 72(p). Accordingly, we do not address
whether respondent correctly included such amounts in the
deemed distribution for 1991.
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