- 13 -
agreements executed by petitioner and Huntington, and MMS and
petitioner, respectively. Petitioner executed a $250,000
promissory note in favor of Huntington, and MMS executed a
$250,000 promissory note in favor of petitioner, to cover the
increased amounts under the respective credit lines. Likewise,
each member of the Rapp Group executed limited guaranties that in
the aggregate covered the increase in the Miller/Huntington line
of credit to $1,250,000. Other than the $250,000 increase, the
terms and conditions of the foregoing loan agreements and
guaranties did not change in any material respect.
Huntington's internal report covering the $250,000 increase
listed the primary source of repayment as "Personal cash flow [of
petitioner] and/or funds from Miller Medical Systems, Inc."
The Miller/Huntington Loan line of credit was drawn down to
its full $1,250,000 authorized amount by November 1, 1993.
Required monthly payments of interest were made to Huntington,
along with periodic principal payments and draws, so that the
outstanding balance on the Miller/Huntington Loan was $1,184,930
as of yearend 1993. On its Federal income tax return for 1993,
MMS reported $1,184,930 in loans from shareholders as of yearend,
essentially the same figure recorded by Huntington as the
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