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Helvering, 290 U.S. 111 (1933). To rule in petitioners' favor, we
must be convinced that both petitioner and Mr. Garcia intended the
payments to be loans. To perform our task, we must distill truth
from falsehood. See Diaz v. Commissioner, 58 T.C. 560, 564 (1972);
Arcia v. Commissioner, T.C. Memo. 1998-178.
We carefully observed petitioners at trial and found them to
be credible and truthful witnesses. We are satisfied that
petitioners sincerely believed a debtor-creditor relationship
existed at the time Mr. Garcia provided petitioner with the
payments as a short-term bridge loan, on the basis of petitioners'
real estate holdings. Relying on these payments, petitioners
uprooted and moved south, using the money to purchase a home in
Florida as well as to pay for remodeling and furniture.
Petitioners regarded this favorable financing from Mr. Garcia as
unavailable in the normal course of business. However, they
understood that once petitioner began to receive a salary from the
bank, he would repay the $271,836 to Mr. Garcia and/or his two
businesses.
Petitioner introduced into evidence a copy of a letter, dated
April 21, 1991, he wrote to Mr. Garcia which outlined their loan
agreement. This letter embodies petitioner's understanding of the
loan. (Respondent notes that the letter was not found when police
searched Mr. Garcia's residence and businesses. We believe that
either it was lost or Mr. Garcia took it when he decided to flee
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