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the earlier time. When the debt was reduced in circumstances
that the parties now agree did not include a repayment of the
debt by Mr. Lechner, his net worth correspondingly increased.
This increase in his net worth, which results from the reduction
of his indebtedness to the corporation, see sec. 61(a)(12), is
the economic benefit that satisfies the first prong of the
constructive dividend test.
Petitioners’ second argument is based on what they assert is
the equivocal nature of the book entry reducing the receivable.
The creation of the debt in this case, whose existence and
intention to repay at inception the parties acknowledge, was
evidenced only by a journal entry on the corporate books. We
find that the subsequent reduction of the receivable by journal
entry evidenced, pro tanto, the intention not to repay.
We acknowledge that this is not an open and shut
proposition. Accounting entries can be equivocal, as we have
held numerous times in finding that accounting entries purporting
to create a corporate receivable from a shareholder did not
persuade us that valid debt had been created. See, e.g., Haber
v. Commissioner, 52 T.C. at 266. Respondent has requested the
Court to find that “Lechner understood that the debt had been
reduced and he believed that he need not pay it”. Petitioners’
requests for findings stress that the journal entries on the
corporate books of account reducing the account receivable were
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