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merely book entries. As soon as some amount was repaid to
petitioner (always substantially less than had been advanced)
petitioner would make another, usually larger advance to the
sister corporations. Significantly, we note that while the
repayments were decreasing and the sister corporations’ ability
to repay was dwindling, petitioner continued to advance funds in
progressively larger amounts.
It is important to note that no interest was actually paid
to petitioner by the sister corporations. In a similar manner to
the repayments, the interest accruals appear to be an attempt to
simulate the existence of debt. We note that the accruals were
limited, sporadic, and had no apparent fixed percentage.
As noted by the Court of Appeals for the D. C. Circuit,
petitioner reported taxable income only in 2 of the years under
consideration, 1986 and 1987. In five of the periods in which
interest was accrued by petitioner, the accrual of interest
merely reduced petitioner’s losses and did not result in taxable
income. Put another way, of the $175,662 of interest accrued and
reported by petitioner, only $45,253 (about one-fourth) resulted
in additional tax burden on petitioner.
When compared to the outstanding cumulative balance, the
amount of interest accrued was substantially less in percentage
than the going rate of interest during the period under
consideration. Again, no interest was actually paid by the
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