Rodney Noble and Jo Marie Payton - Page 15

                                       - 14 -                                         
          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.                               















Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  

Last modified: May 25, 2011