Larry J. and Anita L. Lundgren - Page 16

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               The Lucky Kirt Trust loans to Mr. Lundgren and petitioners’            
          daughter will not be respected as bona fide loans.  A bona fide             
          loan requires a debt-creditor relationship and the expectation of           
          repayment.  Fisher v. Commissioner, 54 T.C. 905, 909-910 (1970).            
          The Court considers the following factors as relevant here in               
          determining whether a valid debtor-creditor relationship existed:           
          (1) Whether the purported loan was evidenced by a written                   
          promissory note; (2) whether a reasonable market rate of interest           
          was charged; (3) whether a schedule for repayment or a stated               
          maturity date was established; (4) whether security or collateral           
          for the loan existed; and (5) whether the loan was actually                 
          repaid by the stated maturity date. Clark v. Commissioner, 18               
          T.C. 780, 783 (1952), affd. 205 F.2d 353 (2d Cir. 1953); Meier v.           
          Commissioner, T.C. Memo. 2003-94.                                           
               The loans from Lucky Kirt Trust to Mr. Lundgren and                    
          petitioners’ daughter did not contain any of the elements that              
          would support the creation of a bona fide loan.  Because of the             
          relationship between petitioners and the trust, these transfers             
          will be highly scrutinized.  See Clark v. Commissioner, supra at            
          783 (holding that “intrafamily transactions are subject to rigid            
          scrutiny”).  The loans are conclusive evidence that in practice             
          the trust was petitioners’ alter ego, and petitioners were not              
          bound by the restrictions of the trust, if there really was one,            
          or the law of trusts.                                                       






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