Karns Prime & Fancy Food, Ltd. - Page 22

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                  *       *       *       *       *       *       *                   
                    In the instant case, Petitioner has demonstrated                  
               that all the indicia of a loan as well as a true                       
               creditor-debtor relationship existed.  A Promissory                    
               Note was signed * * *; the Note called for interest on                 
               the unpaid balance at the rate of prime plus 1% * * *;                 
               the Note was to be repaid in six annual payments of                    
               $250,000 each commencing on April 16, 2000 and continu-                
               ing on the third Friday of each April thereafter                       
               through and including April 16, 2005 * * * the Peti-                   
               tioner granted Super Rite a security interest in                       
               (i) all inventory, (ii) all accounts, (iii) all equip-                 
               ment, including without limitation, all machinery,                     
               equipment, furnishings and fixtures of any kind and                    
               nature and description, and (iv) all proceeds of the                   
               foregoing * * *; Petitioner recorded the $1.5 million                  
               Promissory Note as a long term note payable * * *; at                  
               the time of the transaction, Petitioner considered the                 
               $1.5 million as a loan * * *                                           
                  *       *       *       *       *       *       *                   
                    There was no guarantee in April of 1999 that the                  
               Petitioner would meet the purchase obligations or other                
               obligations under the Supply and Requirements Agree-                   
               ments for the ensuing six years.  Accordingly, there                   
               was no guarantee that the future debt service payments                 
               would be forgiven.  Without any guarantee that Peti-                   
               tioner would be allowed to keep the funds, there is no                 
               income from the loan unless and until such time a debt                 
               service payment is forgiven.  “In determining whether a                
               taxpayer enjoys ‘complete dominion’ over a given sum,                  
               the crucial point is not whether his use of the funds                  
               is unconstrained during some interim period.  The key                  
               is whether the taxpayer has some guarantee that he will                
               be allowed to keep the money.”  C.I.R. v. Indianapolis                 
               Power & Light Company, 493 U.S. 203, 110 S. Ct. 589.                   
                    If Super Rite had filed for bankruptcy, the Supply                
               and Requirements Agreement could be canceled * * *.                    
               Had Super Rite declared bankruptcy, they [petitioner]                  
               would have been under default under the Supply and                     
               Requirements Agreement and accordingly, all amounts due                
               under the Note would have been immediately due and                     
               payable.  If the Petitioner was unable to meet their                   
               payment obligations * * * under the Supply and Require-                
               ments Agreement and such default remained uncured for a                
               period of 30 days, Super Rite could cancel the Agree-                  

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