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interest rates to which section 7872 applies.7 Respondent argues
Mr. Cutts’s debts to ATV and ATV’s debts to Mr. Cutts should be
treated as separate loans for purposes of applying section 7872.
Petitioners argue the debts Mr. Cutts owed ATV should be netted
against the debts ATV owed Mr. Cutts. We agree with petitioners
and hold they are entitled to net the debts.
Because the netting question is an issue of first impression
under section 7872, we dropped the ball in allowing this case to
retain its designation as a small tax case under section 7463 and
Title XVII of the Court’s Rules. Through our inadvertence and
respondent’s failure to object, see H. Conf. Rept. 105-599, at
245 (1998), 1998-3 C.B. 747, 999, we failed to exercise our power
prior to trial to remove the small tax case designation under
Rule 171(c). Even though our opinion is not precedential and
should not be cited as authority, we provide a thorough analysis.
By virtue of the principle of Commissioner v. Sunnen, 333 U.S.
591 (1948), our decision may affect other tax years of
petitioners.8
Section 7872 concerns the income tax consequences of “below-
market” or “interest-free” loans” between a corporation and any
7Petitioners do not dispute respondent’s determination that
ATV has imputed interest income under sec. 7872 for interest-free
loans to stockholder-vice president Max Angerholzer.
8In view of the relatively small amounts of taxes and
penalties in issue for the 1997 tax year, we are otherwise at a
loss to understand the parties’ failure to settle these cases.
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