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(3) Analysis of Petitioners’ Evidence of Loans by
Them to Sidal
(a) Introduction
Both Michel and petitioners gave uncontradicted testimony
that they believed the wire transfer and Paulan direct payments
were structured so as to constitute back-to-back loans from
Paulan to petitioners and from petitioners to Sidal, thereby
generating bases for petitioners in Sidal equal to the loan
amounts. As we have already noted, however, supra section
III.C.2. of this report, petitioners’ beliefs are not necessarily
determinative, and we must be objective in judging intent.
Before we address the particular facts in front of us, we make
some preliminary observations.
Yates v. Commissioner, supra, and Culnen v. Commissioner,
supra, instruct us that we are not required to find that Sidal’s
indebtedness ran to Paulan, rather than to petitioners, solely
because the flow of the borrowed funds ran directly from Paulan
to Sidal, and the flow of the principal and interest payments ran
directly from Sidal to Paulan. See also Gilday v. Commissioner,
T.C. Memo. 1982-242 n.8, in which we were untroubled by such
direct payments and characterized a scenario in which the S
corporation repays the shareholder who in turn repays the lender
as “the utilization of fruitless steps.”
Nor do we consider it fatal to petitioners’ position that
the back-to-back loan structure was adopted in order to enable
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