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for the benefit of Tharp family members, most of whom were
shareholders of petitioner. This is the type of situation that
section 7872 was intended to address. In the setting of this
case, if there had been significant ownership of the borrowing
entities by anyone who did not belong to the Tharp family, we do
not think it likely that interest-free loans to those entities
would have been made by petitioner. In view of the foregoing, we
hold that the direct and indirect loans made by petitioner come
within the provisions of section 7872(c)(1)(C) and that interest
should be imputed to petitioner.
That does not end our inquiry, however, because respondent,
in the notice of deficiency, computed the amount of interest to
be imputed to petitioner on the basis of the loans outstanding
during each of petitioner’s taxable years. For tax purposes,
petitioner used a fiscal year ending on August 31. Petitioner,
however, argues that section 7872 requires an interest
computation based on a calendar year. Section 7872(a)(2)
provides that
Except as otherwise provided in regulations prescribed
by the Secretary, any foregone interest attributable to
periods during any calendar year shall be treated as
transferred (and retransferred) under paragraph (1) on
the last day of such calendar year.
The Commissioner did not publish any final or temporary
regulations that vary from the rule stated in section 7872(a)(2).
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