Wayne L. Patrick - Page 13

                                       - 13 -                                         

               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.                                                                 




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  Next

Last modified: May 25, 2011