- 41 -
basis of conversations with the taxpayer. In this case, there is
no evidence that petitioners were even aware of the Paulen and
Sidal accounting entries designed to show back-to-back loans
through them or of the fact that the appropriate adjusting
entries were not made in connection with the July 11, 1997 and
1998, Paulan payments to Sidal. Rather, the testimony at trial
indicated that petitioners relied completely upon Michel for all
tax planning, and that it was Michel who, alone, was responsible
for making the accounting entries consistent with his plan to
generate tax bases for petitioners in Sidal. Petitioners, who
lacked any hands-on involvement with the accounting for the
Paulan direct payments, cannot, like the taxpayers in Yates, and
Culnen, rely on those accounting entries to prove the existence
of binding debt obligations from Sidal to them and from them to
Paulan arising out of those payments on the dates thereof.
In Burnstein v. Commissioner, T.C. Memo. 1984-74, we
rejected the taxpayer’s attempt to reclassify intercorporate
loans as back-to-back loans through the taxpayers, commenting as
follows.
All [the taxpayers] really did was make journal
adjustments at the end of each year (when it could be
determined that * * * [the transferee S corporation]
would have a net operating loss) to reclassify the
transferred funds on the books of * * * [the transferor
corporation] as accounts receivable due from [the
taxpayers] and on the books of * * * [the transferee S
corporation] as accounts payable due [the taxpayers].
* * *
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