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records and received repayments during the years in issue.
Contrary testimony offered by Mrs. Hoffman was vague,
contradictory, and unpersuasive. Therefore, we conclude that the
advances were loans for purposes of section 7872, and the loan
requirement is satisfied.
2. Demand or Term Loan
Below-market loans fit into one of two categories: Demand
loans and term loans. See sec. 7872(e)(1). A demand loan
includes “any loan which is payable in full at any time on the
demand of the lender.” Sec. 7872(f)(5). A term loan is “any
loan which is not a demand loan.” Sec. 7872(f)(6).
The determination of whether a loan is payable in full at
any time on the demand of the lender is a factual one. Loans
between closely held corporations and their controlling
shareholders are to be examined with special scrutiny. See
Electric & Neon, Inc. v. Commissioner, 56 T.C. 1324, 1339 (1971),
affd. without published opinion 496 F.2d 876 (5th Cir. 1974).
Petitioners made loans, without written repayment terms, to their
controlled corporation, and they determined when the loans would
be repaid. Therefore, we conclude that the loans are demand
loans.
3. Below-Market Interest Rate
A demand loan is a below-market loan if it is interest free
or if interest is provided at a rate that is lower than the
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