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For 1991 through June 1992, Del Netherlands transferred the
funds received from Del Commercial either to Delcom Holdings or
to Delcom Financial. The funds were used to pay principal and
interest owed on the $14 million Royal Bank loan.
In July of 1992, because of concern of Royal Bank over
payments due on its $14 million loan, Del Commercial began to
make the loan payments due on the loan it had purportedly
received from Del Netherlands directly to Delcom Financial,
bypassing Del Netherlands and Delcom Holdings, and Delcom
Financial then forwarded funds to Royal Bank in payment on the
Royal Bank loan. On Del Commercial’s books and records, those
loan payments were still recorded as having been made to Del
Netherlands.
On December 4, 1992, Delcom Financial and Royal Bank amended
the terms of the original $14 million Royal Bank loan. The
amendment, among other things, increased the interest rate
charged on the loan by 1 percent. Also, under the amended loan
agreement, Tridel added its guaranty on the Royal Bank loan.
For 1990 through 1993, Del Commercial did not file U.S.
Federal withholding tax returns with respect to the interest
payments in issue.
On audit, respondent determined that the substance of the $14
million loan to Del Commercial reflected a loan not from Del
Netherlands, but from Delcom Financial, and therefore that the
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