- 26 -
and lender to MMS should be disregarded, and the transaction
treated as in substance still a loan from Huntington to MMS, with
the result that petitioners obtained no basis for purposes of
section 1366(d)(1)(B).
We find respondent's arguments unpersuasive. Respondent's
assertion at various points that Huntington still held MMS's
promissory note21 is not supported by the record. Concededly,
petitioners did not produce a canceled version of the
MMS/Huntington promissory note, but Huntington's business records
document the note as satisfied on December 30, 1992, by payment of
its $750,000 balance.
Respondent further contends that MMS, not petitioner, was in
substance the borrower from Huntington because petitioner was
required by Huntington to assign to Huntington the MMS/Miller
promissory note. Because of the assignment, Huntington
"essentially owned and controlled" the note MMS executed in favor
of petitioner and was its "beneficial owner", respondent argues.
By contrast, petitioners maintain that petitioner made only a
collateral assignment of the note. We agree with petitioners.
21 Respondent's apparent goal is to draw a parallel with
Hitchins v. Commissioner, 103 T.C. 711, 717-718 (1994), wherein
the lack of a cancellation or novation of the original debt
between the taxpayer and his C corporation, which debt was
assumed by the taxpayer's S corporation, figured prominently in
our conclusion that the S corporation's assumption of that debt
did not create direct indebtedness between it and the taxpayer
for purposes of the predecessor of sec. 1366(d)(1)(B).
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