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loan. Morrison v. Commissioner, T.C. Memo. 2005-53; see Welch v.
Commissioner, supra at 1230; Baird v. Commissioner, 25 T.C. 387,
395 (1955).
Petitioner credibly testified that, at the time the
disbursements were made, he intended the disbursements to be
loans, he believed that interest would be charged, and he
understood that he would have to repay the amounts disbursed.
During 2000, petitioner paid $48,344.76 in interest and repaid
$400,000 of the disbursements.
Mr. Morrison, the minority shareholder of Caspian, credibly
testified that he understood the amounts disbursed to petitioner
were loans, and he expected petitioner to repay the loans
together with interest.
In addition, Caspian reported petitioner’s $48,344.76
payment as interest income on its 2000 income tax return.
Caspian treated the disbursements to petitioner as notes
receivable, indicating Caspian’s expectation that the amounts
would be repaid.
The behavior of the parties weighs heavily in favor of
finding a loan.
Summary
While three of the seven factors weigh in favor of finding a
constructive dividend, we find those factors to be less
persuasive in the present case. In transactions between
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