- 32 -
the IRS; i.e., “annual netting” and “global interest netting”.
See FNMA v. United States, 56 Fed. Cl. 228 (2002); Rev. Proc. 94-
60, 1994-2 C.B. 774.
Petitioners are entitled to net the debts and thereby fix
the dividend and interest income respectively realized by Mr.
Cutts and ATV under section 7872 in amounts smaller than those
determined by respondent.
The result of our decision to net the debts is that, under
section 7872, ATV is considered to have made nondeductible
dividend distributions to Mr. Cutts during each month of his 1997
calendar year in the amount of the forgone interest on the net
outstanding balance of each month’s debts. Mr. Cutts is treated
as having retransferred the forgone interest to ATV during each
month of ATV’s tax year ended September 30, 1997, thereby giving
ATV interest income for each month of its 1997 tax year.13
Mr. Cutts is not entitled to deduct the portion of
constructive interest payments allocable to personal purchases
for the company credit card and ATV’s payment of his child
support. See sec. 163(h). Mr. Cutts made payments on the
Landmark Hall mortgage by having ATV write the mortgage payment
13Mr. Cutts is not treated as receiving dividend income for
his 1997 tax year from loans made by ATV during the 3 months
ended Dec. 31, 1996. ATV is not treated as receiving interest
income for its tax year ended Sept. 30, 1997, from its loans made
to Mr. Cutts during the 3 months ended Dec. 31, 1997. Those
periods are not before us.
Page: Previous 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 NextLast modified: May 25, 2011