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On July 20, 1999, the hospital filed a diversity complaint
against petitioner in the U.S. District Court for the Middle
District of Tennessee to recover the balance of the promissory
note--$110,780 plus accrued interest from November 1998. This
amount represented the funds advanced to petitioner from the
hospital and not yet repaid under the practice agreement. The
U.S. District Court granted summary judgment to the hospital and
awarded it the outstanding balance on the note, accrued interest,
and attorney’s fees and expenses.
Respondent determined that petitioner received unreported
taxable income of $242,556 from the hospital in 1993. Respondent
determined that “the loan from Jesse Holman Jones Hospital does
not constitute a valid loan”.
Discussion
Petitioner argues that the guarantee payments advanced to
him during 1993 constituted a loan. Petitioner argues that these
payments were a loan because the transaction was at arm’s length,
a promissory note was executed which bore interest and required a
balloon payment, each party intended to make or enforce repayment
per repayment terms enumerated in the practice agreement, the
hospital maintained a schedule of all payments and repayments,
and the hospital would charge an interest rate as of the
termination date of the practice agreement. In addition,
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