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Consequently, for Federal income tax purposes there was no debt
between the Waltons and Charles Sutter. See Beaver v.
Commissioner, 55 T.C. 85 (1970). Pursuant to the apparent
arrangement among Charles Sutter, the Waltons, and the Schwabs,
the DDI note was to be repaid not by Charles Sutter, but by the
Schwabs, or an entity controlled by the Schwabs. This is in fact
what happened not only in this case, but with other customers of
the Schwabs as well who received funds from DDI. As far as
Charles Sutter was concerned, the DDI note was a nullity.
Disregarding the DDI note, it follows from our holding in Wentz
v. Commissioner, supra, see also Haderlie v. Commissioner, supra,
that the fair market value of the life insurance coverage Charles
Sutter received from Columbus, measured by the amount of the
first-year premium for that insurance, must be included in
petitioners' income for 1992, and we so hold.
Respondent's argument that the Stable and RMR notes were
also illusory is likewise persuasive. There is credible evidence
in the record that those notes were afterthoughts, designed not
to represent legitimate debt between the makers and holders, but
to disguise transactions that would otherwise lead to the Federal
income tax consequences that are involved in this proceeding.
The manner in which the Schwabs orchestrated each transaction
through entities that they controlled, coupled with the extent of
the compensation they received from the insurance companies,
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