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On January 7, 1993, and January 27, 1993, petitioner made
two additional advances to Gandy’s of $25,000 each. Neither
advance is evidenced by a note.
On December 2, 1993, petitioner wired an additional $10,483
to a broker to pay shipping charges on slate from Italy that
Gandy’s had ordered for use in the manufacture of pool tables.
This advance is evidenced by a demand note bearing 8 percent
interest.
Although Gandy’s was in default on two of petitioner’s
advances after December 31, 1991, petitioner did not sue Gandy’s
for collection or otherwise demand payment of principal or
interest with respect to any of the advances.
Petitioner’s advances to Gandy’s from 1990 through 1993 were
all unsecured, because Gandy’s had pledged all its assets to
other lenders. Petitioner’s advances to Gandy’s were
subordinated to the Gandy’s bonds.
Gandy’s treated all the advances in question (with the
possible exception of the $10,483 advance of December 2, 1993) as
shareholder debt and accrued interest thereon.8 It was Gandy’s
intention to repay the advances as soon as Gandy’s started
producing positive cash-flow. This never happened. On its
September 30, 1991, and September 30, 1992, Forms 1120, U.S.
8 The record does not reveal how Gandy’s treated the
December 1993 advance of $10,483.
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