Loretta Jean Randolph - Page 3




                                        - 3 -                                         
          1983, petitioner and her now former spouse owned 604 shares of              
          the corporation’s stock out of a total of 4,000 shares                      
          outstanding.                                                                
               On April 10, 1989, petitioner received a check made payable            
          to her in the amount of $50,000 and written on an account                   
          maintained in the name of the corporation.  The check memo line             
          contained the following notation: “10,000 gift 40,000 loan”.                
               Also on April 10, 1989, petitioner signed a promissory note            
          (note) in which she promised to pay the corporation $50,000.  The           
          note was payable on demand and did not provide for the payment of           
          interest.  Beneath petitioner’s signature was the typed                     
          instruction to “SEE BACK”.  The reverse side of the note                    
          contained the following typed statement: “Unless sooner                     
          terminated, as herein provided, upon the deaths of both Murl E.             
          Patterson and Dorothy E. Patterson, this note shall be                      
          cancelled.”  The Pattersons signed and dated that statement as of           
          November 21, 1991.                                                          
               Petitioner made no payments on the note.  On a Schedule L,             
          Balance Sheet, filed with its 1993 corporate income tax return3             


               3At trial, petitioner objected to the admission of the                 
          corporation’s 1993 return and 1994 return on hearsay grounds.  We           
          admitted the 1994 return under the so-called business records               
          exception to the hearsay rule.  See Fed. R. Evid. 803(6).  We               
          deferred ruling on her objection to the 1993 return.  After                 
          consideration, we admit the 1993 return also under the business             
          record exception to the hearsay rule.                                       
                                                             (continued...)           





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