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construction loan. Petitioners claim the entire amount of this
loan as expenses in computing the NOL for 1992. However, in
their opening brief, they claim that interest expense was paid on
the Pacific construction loans in excess of the interest reserves
set up therein and according to Federal “G” rates. Again,
petitioners’ method of reconstruction fails to preclude the
possibility of a double-counting of expenses. Further, this loan
was secured by a pledge of a note and a deed of trust from Golden
Sunset Homes, Inc., petitioners’ wholly owned corporation. There
is evidence in the record that the interest obligations to Golden
Sunset on the note were assigned to the bank, and those interest
payments may have been credited against petitioners’ obligations
on the Pacific loan. Petitioners did not report the pledge of
the note, the deed of trust, or any interest payments as
corporate distributions or dividends. In any event, there is no
evidence in the record showing whether this loan was repaid.
With respect to the $250,000 loan, a portion of that loan
represents the renewal of an existing loan of $150,000. There is
nothing in the record showing that the prior loan was paid into
the Atherton project. Documents from Pacific indicate that
$90,000 of the $250,000 loan was earmarked for the payment of
outstanding material and subcontractor bills. However, those
documents are insufficient substantiation of those expenses.
Petitioners have failed to provide a reasonable basis for
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