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The notes contain provisions for security, payment of
principal and interest, and a fixed repayment schedule over a
5-year period. Respondent argues that the existence of these
provisions is weak evidence of debt because the notes were not
signed until after the distributions were received and the
provisions were ignored by both the Plan trustee and the
administrator.
Security, interest, and repayment arrangements are
ordinarily important proofs of intent to treat the transaction as
debt. Berthold v. Commissioner, supra at 122. However, the fact
that the funds were distributed before the drafting and signing
of the notes militates against assigning much weight to this
indicium.7 Accordingly, this indicium offers no more than
marginal support for the existence of debt.
c. The Parties' Records
Respondent notes that petitioners provided no evidence,
other than the notes, that the Plan, the Plan administrator, the
Plan trustee, or petitioners maintained any records reflecting
the transfers as loans. The record is indeed void of any other
evidence that the parties maintained records indicating that the
transfers created debt. This indicium supports a finding that
the transfers did not create bona fide debt.
7 We also note that no steps were taken to enforce these
provisions.
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