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that shareholder's wife; and (2) whether petitioners are liable
for substantial understatement penalties under section 6662.
Background
The parties submitted the instant case fully stipulated
pursuant to Rule 122. The facts stipulated by the parties are
incorporated herein by reference and are found as facts in the
instant case. When they filed their petition, petitioners
resided in Monroe, Iowa.
During the years in issue, petitioner Larry Van Wyk
(petitioner) and his brother-in-law, Keith Roorda, each owned 50
percent of the stock of West View of Monroe, Iowa, Inc. (West
View), an S corporation engaged in the business of farming.
On December 24, 1991, petitioners borrowed $700,000 from
Keith Roorda and his wife, Linda Roorda. To evidence their debt
to Keith and Linda Roorda (the Roordas), petitioners executed a
promissory note bearing interest at 10.5 percent per annum. The
note was unsecured. Also, on December 24, 1991, petitioners
transferred $700,000 to West View. Of that amount, $253,583
retired debts petitioners owed to West View with the remaining
$444,417 constituting indebtedness owed by West View to
petitioners (the loan).
On their tax returns for 1988 through 1993, petitioners
reported one-half of the profits and losses from West View.
Respondent determined that petitioners' income should be
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