- 26 -
supra at 105. We conclude under Alabama law that open-account
debts from Mr. Cutts to ATV would be netted against open-account
debts from ATV to Mr. Cutts.10
We now turn to the Federal income tax treatment of the debts
under section 7872. Under section 7872(a)(2), any forgone
interest attributable to periods during any calendar year are to
be treated as transferred (and retransferred) on the last day of
such calendar year. However, the parties conceded, through their
arguments and the ledgers, that, for purposes of this case,
interest should be imputed and treated as payable at the end of
each month rather than at the end of the calendar year. In the
interests of judicial economy, we accept the parties’ concession
of law. See Fazi v. Commissioner, 105 T.C. 436, 444 (1995).
In KTA-Tator, Inc. v. Commissioner, supra, we agreed with
the Commissioner and held that each of a series of advances under
a line of credit was a separate loan on which imputed interest
began to accrue under section 7872 on each advance as it was
made. For authoritative guidance to support our holding, we
turned to the conference report to the Deficit Reduction Act of
1984, Pub. L. 98-369, 98 Stat. 494, which states: “‘any transfer
10Under Alabama tax law, gross income includes interest or
other income determined in accordance with sec. 7872. Ala. Code
sec. 40-18-14.3 (2003). Alabama law does not specifically
address whether cross-loans should be netted for purposes of
applying sec. 7872 or the correlative provision of the Alabama
tax law.
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