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During the years in issue, Caspian made disbursements to or
on behalf of petitioner in amounts totaling $1,570,334.58.
Caspian reflected the disbursements on its books as either
advances, officer’s receivables, or notes. On December 29, 2000,
petitioner repaid a total of $448,344.76, of which $400,000 was
applied to reduce the balance of the notes receivable accounts.
Petitioner’s repayment of slightly more than 25 percent of the
total disbursements was substantial and not merely nominal. This
factor weighs in favor of finding a loan.
6. Petitioner Had a Reasonable Prospect of Repayment
A reasonable prospect of repayment indicates the existence
of a loan. See Welch v. Commissioner, 204 F.3d 1228, 1231 (9th
Cir. 2000). A taxpayer’s insolvency or financial difficulty
casts doubt on the ability to repay and thus on the
characterization of a disbursement as a loan. See id.
Petitioner and his wife reported adjusted gross income of
$233,097 and $797,682 for 1999 and 2000 respectively. On
December 29, 2000, petitioner repaid $400,000, leaving
$1,170,334.58 outstanding. Given petitioner’s income and history
of repayment, petitioner had a reasonable prospect of repaying
the remainder of the disbursements. This factor weighs in favor
of finding a loan.
7. The Parties Involved Treated the Disbursements as Loans
The conduct of the parties may indicate the existence of a
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