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their constructive dividends in the form of forgone interest for
1992, 1993, and 1994 are $8,310.81, $5,912.55, and $164.72,
respectively. Respondent argues that the Oregon law cited by
petitioners is irrelevant to the application of section 7872.
The Oregon statute of limitation relied upon by petitioners
generally requires that actions upon a contract or liability must
be commenced within 6 years. Or. Rev. Stat. sec. 12.080 (1997).
However, petitioners stated in their petition to the Court that
the loans were substantially repaid as of April 14, 1997, several
years after the loans allegedly became "unenforceable" under
Oregon law. In addition, KHTC listed all of the outstanding
advances as loans to stockholders on the Schedules L (balance
sheets) of its Federal income tax returns. We conclude from this
record that petitioners treated all of the loans as valid debt
during the taxable years in issue. Moreover, we agree with
respondent's position that State law does not control whether
these outstanding loans are subject to section 7872. Morgan v.
Commissioner, 309 U.S. 78, 80 (1940); Burnet v. Harmel, 287 U.S.
103, 110 (1932); see also Estate of Arbury v. Commissioner, 93
T.C. 136, 148 (1989) where State usury laws did not limit the
fair market interest rate to an amount less than the federal
statutory rate.
We have considered petitioners' other arguments with respect
to respondent's determinations of their constructive dividends in
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