Antonio and Joyce Rosario - Page 5

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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”.                                               
               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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