- 19 - 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, orPage: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Next
Last modified: May 25, 2011