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made personal purchases using the ATV company credit card.
Instead of exchanging checks, petitioners simply deducted Mr.
Cutts’s personal purchases from the rent payment obligation and
had ATV pay Mr. Cutts’s other obligations such as child support
and Landmark Hall mortgage payment obligations. Given
respondent’s argument in favor of substance over form in the
proposed regulations, it ill behooves respondent to rely on
substance where it suits him and to rely on formalisms when
respondent does not like the result of giving effect to
substance.
Contrary to respondent’s argument, we see no reason why
netting would necessarily increase complexity for business and
tax planners.
Respondent argues netting a term loan against a demand loan
would frustrate and complicate enforcement of section 7872. We
do not have a term loan overlapping a demand loan because both
sets of loans between petitioners are demand loans. Even if our
decision in this case had precedential authority, our decision
would not govern the situation where a term and demand loan
overlap. See In re Patterson, 967 F.2d at 510.
Our holding in favor of netting conforms with results in
other contexts where netting of mutual debts has been addressed
for Federal tax purposes. A zero net interest rate is applied to
overlapping periods of mutual indebtedness between a taxpayer and
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