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income as petitioner claimed in the disclosure statements
attached to his returns for 1990-94. Petitioner could not have
reasonably expected repayment on those advances, and any
expectation of a profit would have been imaginary, especially
considering the high rates of interest which attached to
petitioner’s borrowing of the funds advanced. The advances were
made for the sole purpose of protecting petitioner’s original
loan of $3 million. That loan and the commitment fee do not
establish a trade or business of making loans and guaranties.
The loan from Natwest to petitioner and the loan from
petitioner to WMG had the same interest rates. Petitioner could
not have earned, or expected to earn, a profit on that series of
loans. As petitioner suggests, he was acting as a mere conduit
between Natwest and WMG, because WMG was to cover all the
principal, interest, and fees that petitioner might incur with
respect to Natwest. Thus, in substance, the series of loans
resembles a typical guaranty arrangement, and the commitment fee
that petitioner was to receive from WMG resembles a typical
guaranty fee. The only possible business reason we find on the
record for petitioner in making this loan commitment was the
opportunity of receiving the commitment fee. However, similar to
petitioner’s other guaranty arrangements, it appears this fee was
a mere afterthought. Further, the rescission of the commitment
fee that petitioner offered and which WMG accepted suggests that
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