Rountree Cotton Co. - Page 19




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          questions about how the shareholders or nonshareholders are                 
          individually taxed.  Here, we have jurisdiction solely over                 
          whether petitioner, a corporation, is subject to section 7872 and           
          whether imputed interest arises from the interest-free loans it             
          made to its shareholders and the related entities.                          
               Petitioner, however, is contending that distortion is caused           
          by the application of section 7872 to situations where a                    
          corporation makes loans to an entity in which both shareholders             
          and nonshareholders of the lending corporation have ownership               
          interests.  Petitioner explains that Claud Tharp, who owned no              
          shares in the lending corporation (petitioner), did own 20                  
          percent of the Tharp Farms Partnership and 25 percent of Tharp              
          Enterprises Partnership, entities that received most of the                 
          proceeds of the indirect below-market loans.  Petitioner’s                  
          argument contains the implication that respondent would be unable           
          to make dividend income adjustments to all participants in the              
          entity to which indirect loans are made.  Petitioner theorizes              
          that respondent’s alleged inability should preclude respondent              
          from determining that the lending corporation had income                    
          attributable to the below-market interest.  Petitioner’s position           
          is somewhat myopic because section 7872 is not limited to                   
          transactions between corporations and shareholders.  It may                 
          result in below-market loans being treated in part as gifts,                
          dividends, contributions of capital, payments of compensation, or           






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Last modified: May 25, 2011