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purposes. Petitioners cite Cepeda v. Commissioner, T.C. Memo.
1993-477, to support their position. Cepeda, however, is
inapposite. In that case, the taxpayers claimed that advances
made by the corporation were loans rather than employee
compensation or constructive dividends. Petitioners do not
contend that the corporate payments of Mr. Schmidt’s expenses
were loans.
For Federal income tax purposes, a transaction will be
characterized as a loan if there was “an unconditional obligation
on the part of the transferee to repay the money, and an
unconditional intention on the part of the transferor to secure
repayment.” Haag v. Commissioner, 88 T.C. 604, 616 (1987), affd.
without published opinion 855 F.2d 855 (8th Cir. 1988). In the
instant case, when the payments were made there was no
unconditional obligation on the part of Mr. Schmidt to repay a
specific dollar amount to the corporation. His obligation to
repay any of the payments was in general terms. The amount of
repayment could not be determined when the payments were made.
Any obligation to repay any amount could not arise before
respondent disallowed the deduction for the expenses; i.e, when
the Hillside Dairy notice of deficiency was issued in January
2001. Thus, the payments were not loans. Since the payments
when made by Hillside Dairy did not constitute business expenses
of the corporation or loans to the Schmidts, the conclusion is
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