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respondent apparently could have asserted that a larger gift was
made, we accept respondent’s concession that in the case at hand
the amount of the gift should be computed as though the deferred
payment arrangement were a demand gift loan. However, consistent
with this opinion (and with respondent’s position that section
7872 applies), respondent’s determination should be modified in
two respects. First, the portion of the aggregate sales price
attributable to Jean True’s partnership (and LLC) interests
should be considered to be a loan outstanding from July 1, 1994
rather than from June 30, 1994. Second, the amount of the gift
should be computed using the applicable Federal rates prescribed
by section 7872, rather than the 5.9-percent True family rate
referred to in the statutory notice.93
92(...continued)
of 6 months’ use of the amount lent, suggest that the deferred
payment arrangement might preferably be viewed as a demand loan
of indefinite maturity, rather than a term loan. Sec. 7872(f)(5)
gives the Secretary regulatory authority to treat indefinite
maturity loans as demand loans. However, because the Secretary
has not exercised that authority, a loan that is not a demand
loan ordinarily must be treated as a term loan for sec. 7872
purposes. See sec. 7872(f)(6); KTA-Tator, Inc. v. Commissioner,
108 T.C. 100, 104-105 (1997).
93The short-term applicable Federal rate for June 1994,
based on semiannual compounding, was 5.48 percent; the
corresponding rate for July, 1994, was 5.55 percent. See Rev.
Rul. 94-44, 1994-2 C.B. 190; Rev. Rul. 94-36, 1994-1 C.B. 215.
Respondent’s trial memorandum erroneously referred to the
5.9-percent interest rate used to value the gift in the statutory
notice as the “applicable Federal rate”.
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