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sufficient funds to advance the amounts. Therefore, this factor
weighs in favor of petitioner.
The conduct of the parties may indicate the existence of a
loan. The conduct of petitioner and Caspian was consistent with
the existence of a loan. Petitioner repaid the entire loan.
Petitioner testified that the 1999 payments and disbursements
were used to purchase a house and pay tax liabilities. The 2000
personal charges were used for personal expenses. We find that
this factor weighs in favor of petitioner.
After reviewing the above factors, we conclude that the 1999
payments and disbursements and the 2000 personal charges were
loans.
III. Penalty
Pursuant to section 6662(a), a taxpayer may be liable for a
penalty of 20 percent on the portion of an underpayment of tax
(1) attributable to a substantial understatement of tax or (2)
due to negligence or disregard of rules or regulations. Sec.
6662(b).
We have found for petitioner on the issue of whether the
1999 payments and disbursements were loans. Therefore, there is
no underpayment of tax for 1999 on which a penalty may be
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