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2000
On May 11, 2000, Paulan borrowed $1,350,000 from Old
National Bank (formerly Merchants Bank).12 The loan was secured,
in part, by Paulan real property and guaranteed by Robert,
Lovella, and petitioners. The loan was the source of the
following three Paulan checks to Sidal written in 2000:
Jan. 21 $200,000
Mar. 28 500,000
Oct. 5 400,000
Total 1,100,000
Although Sidal’s adjusted trial balance for its taxable year
ending December 31, 2000, originally reflected a note payable to
Paulan for $1.1 million, adjusting entries were made, as of
December 31, 2000, to reflect, instead, notes payable to
petitioners for $550,000 each.
The Promissory Notes
Sometime during the years 1997-2000, petitioners each
executed promissory notes to Paulan, and Sidal executed
promissory notes to each petitioner (collectively, the promissory
12 Paulan applied for, and Old National Bank approved, a
$1,750,000 loan. There is no explanation in the record for the
$400,000 discrepancy between the loan applied for and approved
and the actual amount of the loan.
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