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B. Whether OMCC or Petitioner Paid the $625,000 Settlement
Respondent contends that petitioner paid the settlement
because (1) petitioner provided collateral for the $550,000 loan,
and (2) OMCC failed to properly account for the $625,000 as a
partnership debt on its books and records.
Bank records show that late in December 1997: (1)
Petitioner and Mildred executed an authorization permitting OMCC
to borrow up to $1 million; (2) petitioner and OMCC signed as
coborrowers on a bank loan in respect of $550,000 of the $625,000
amount that was paid to the Government; and (3) OMCC obtained the
$75,000 balance of the $625,000 settlement payment by borrowing
against a line of credit.
We disagree with respondent’s assertion that petitioner paid
the entire $625,000 settlement. Although the bank had a right to
foreclose on petitioner’s property in the event of a default on
the $550,000 loan, there is no indication that a default occurred
or that petitioner thought it ever would occur. We also are not
persuaded that OMCC’s failure to account for the bank loan as a
partnership debt shows that petitioner paid the $625,000
settlement. Although evidence that OMCC failed to properly
account for the bank loan in its books and records is relevant to
the question whether petitioner or OMCC made the settlement
payment, OMCC’s book entries are not conclusive on the point.
See Estate of Freeman v. Commissioner, T.C. Memo. 1966-42. In
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