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of money that provides the transferor with a right to repayment
may be a loan.’” KTA-Tator, Inc. v. Commissioner, 108 T.C. at
103 (quoting H. Conf. Rept. 98-861, supra at 1018, 1984-3 C.B.
(Vol. 2) at 272).
KTA-Tator, Inc., is distinguishable from this case and does
not address whether overlapping loans should be netted. KTA-
Tator, Inc., did not involve overlapping open accounts. Rather,
it dealt with a timing issue; i.e., whether a series of advances
under a line of credit will be considered one loan or a series of
separate loans for purposes of section 7872.
Because neither section 7872 nor the conference report
provides authoritative guidance on this issue, and the proposed
regulations do not address this issue, we turn to other areas of
Federal tax law for authority on the subject of netting open
account balances between debtor and creditor.
The incidence of taxation depends upon the substance of the
transaction. Commissioner v. Court Holding Co., 324 U.S. 331,
334 (1945); United States v. Ingalls, 399 F.2d 143, 145-146 (5th
Cir. 1968), revg. 272 F. Supp. 10 (N.D. Ala. 1967). Resort to
substance is not a right reserved for the Commissioner’s
exclusive benefit--to use or not to use--depending on the amount
of the tax to be realized. Estate of Weinert v. Commissioner,
294 F.2d 750, 755 (5th Cir. 1961), revg. 31 T.C. 918 (1959); see
also Estate of Durkin v. Commissioner, 99 T.C. 561, 572 (1992).
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