- 11 -
complete transactions as opposed to open account debt.10
Cornelius v. Commissioner, 494 F.2d at 471. The Court of Appeals
stated:
The real question to be decided is whether each
advance to the corporation by the shareholders and its
corresponding repayment constitute a separate and
complete transaction or whether the indebtedness should
be considered as an “open account” whose fluctuations
are to be measured for tax purposes at the end of each
taxable year. * * * The Tax Court properly determined
that “the 1966 loans and the [1967] repayments thereof
constituted a completed transaction, and the loans
occurring later in 1967 were separate and apart from
such transaction.” * * * [Id.; citation omitted.]
Based on the Tax Court’s finding in Cornelius that the loans were
separate transactions and not open account indebtedness, the
taxpayers were required to recognize as taxable income the amount
of the repayment in excess of the taxpayers’ basis in the advance
at the time of repayment, without regard to the basis of a
subsequent advance in the year of repayment. Cornelius v.
Commissioner, 58 T.C. at 423. It may be inferred that a netting
of advances and repayments during the year would have been proper
if the loans had been open account indebtedness rather than
separate transactions.11 Cornelius v. Commissioner, 494 F.2d at
10Pursuant to Bonner v. City of Prichard, 661 F.2d 1206
(11th Cir. 1981), the precedent of the Fifth Circuit Court of
Appeals decided as of Sept. 30, 1981, is followed by the Eleventh
Circuit Court of Appeals, the circuit to which an appeal of this
case, absent stipulation to the contrary, would lie.
11In Smith v. Commissioner, 48 T.C. 872 (1967), affd. in
part and revd. in part on another issue 424 F.2d 219 (9th Cir.
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011