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Paulan direct payments be clearly manifested by the actions of
the parties to those transactions; viz, petitioners, Paulan, and
Sidal. With that thought in mind, we examine the parties’
actions as evidenced by the promissory notes, the minutes, and
the accounting entries.
(b) The Promissory Notes
Petitioners point to the promissory notes as documentary
evidence of the back-to-back loan structure and, in particular,
of “real, enforceable loan obligations between * * * [them] and
Sidal.” Respondent argues that because the promissory notes
reflected loans that were unsecured, yet provided for the same
interest rates as the secured bank loans to Paulan (i.e., because
the terms of those loans were not arm’s-length), and because the
execution dates of the notes are uncertain, they cannot be
considered “genuine”.
We do not find the alleged failure of the promissory notes
to satisfy an arm’s-length standard to be of much help in
deciding the issue of whether those notes do, in fact, reflect
bona fide indebtedness from Sidal to petitioners and from
petitioners to Paulan, which is the issue in this case. If, as
respondent argues, the interest rates on the unsecured
indebtedness from Sidal to petitioners and from petitioners to
Paulan, as set forth in the promissory notes, are too low, those
rates may be subject to increase pursuant to section 482. See
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