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failed to offer sufficient evidence to counter respondent’s
determination with respect to the payments from PPP. We hold,
therefore, that the payments from PPP to petitioner in 1995 and
1996 were constructive dividends and are taxable, to the extent
of earnings and profits, as ordinary income.
Imputed Interest Income
Respondent determined that petitioners have unreported
imputed interest income under section 7872 resulting from
petitioner’s “loans” to the corporation. Section 7872, entitled
“Treatment of loans with below-market interest rates”, operates
on the assumption that a bona fide debt is in existence.
(Emphasis provided.) Although petitioners did not specifically
address respondent’s contention, because there were no loans,
bona fide debt, or debtor-creditor relationship, we are unable to
sustain respondent’s determination.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.
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