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2001) (Cerand II). In T.C. Memo. 1998-423 (Cerand I), we held
that the advances petitioner made to sister
corporations were equity and not debt as claimed by petitioner.
In Cerand II, the Court of Appeals held:
In the present case, we hold that the [Tax Court]
abused its discretion in assessing the evidence. The
critical flaw in the [Tax Court’s] analysis is its
failure, despite the taxpayer having pressed the point,
to consider * * * [petitioner’s] contemporaneous
treatment of sums received from its sister corporations
as in part the payment of “interest,” taxable as income
to * * * [petitioner]. Over a period of several years,
* * * [petitioner] received $414,220 from the three
[sister] corporations, of which it booked more than
$175,000 as interest income. Even though * * *
[petitioner] had taxable income in only two of the
years in question (1986 and 1987), treatment of the
repayments as income in other years reduced the amount
of net operating loss * * * [petitioner] could carry
forward into years when it had taxable income.
Although the [Tax Court] abused its discretion by
omitting from its analysis a highly significant bit of
evidence, we cannot say that, had the [Court] properly
weighed this evidence, it necessarily would have
reached a different conclusion, because we do not know
what weight it assigned to the other evidence.
Therefore, we remand this case for the [Tax Court] to
weigh all the evidence in the first instance.
We also note that the [Tax Court] placed
considerable weight upon the lack of documentation
indicating that the transfers of funds from * * *
[petitioner] to its sister corporations were loans.
Because there were no documents recording the transfers
there necessarily were no stated maturity dates, no
repayment schedules, and no set interest rates. As the
Seventh Circuit recently observed in similar
circumstances, “it is hazardous to say * * * that an
investment must be equity because it is not documented
as debt; lack of documentation does not help us
choose.” J & W Fence Supply Co. v. United States, 230
F.3d 896, 898 (2000). * * * [Petitioner] does not raise
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