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petitioner did not provide a reason why Congress would have
intended that the provisions of section 7872 be limited to loans
made to a majority shareholder. To the contrary, it appears that
Congress did not intend to limit the focus of section 7872 to
loan transactions between controlled entities. Section 7872
addresses below-market loans in several settings where there is
no ownership or control factor whatsoever; i.e., employer/
employee and independent contractor/client. The intent and
context of section 7872 is not limited to situations where there
is control between the lender and the borrower or control over
the ultimate borrowing entity in “indirect” loan situations.
This general absence of a control requirement is bolstered by the
specific language of section 7872(c)(1)(C) causing the statute to
apply to “any shareholder”.
Petitioner also refers to a portion of H. Conf. Rept. 98-861
(1984), 1984-3 C.B. (Vol. 2) 1 (legislative history for section
7872), in support of its position that Congress intended to limit
corporate section 7872 loans to situations involving controlling
shareholders. As part of a paragraph explaining “Family loans
and non-family demand loans”, the House report contains the
following statement:
In the case of a demand loan from a closely held
corporation to a controlling shareholder, the transfer
would be treated as a distribution with respect to the
stock of the distributing corporation and be taxed to
the shareholder as a dividend to the extent of the
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