-26-
We agree with petitioner that all of these disputed items
are nontaxable to them and should be reflected as such. The
largest amount, $5,978.83, reflects a business deposit that was
mistakenly deposited into Michelsen’s personal account and then
contemporaneously transferred to the business account when
Michelsen discovered the mistake. The next largest amount,
$1,900, reflects funds that were withdrawn by LeBloch and then
redeposited into his account. The $660.50 deposit reflects a
reimbursement that NT made to Michelsen. The remaining five
amounts are simply transfers of cash from LeBloch to Michelsen.
2. Loan Repayments
Petitioners argue that respondent’s bank deposits analyses
for the respective years must be adjusted further to reflect
$35,000, $15,000, and $20,000 of nontaxable loan repayments
deposited into one of LeBloch’s financial accounts. We agree.
Case law establishes a two-part test for determining whether a
transfer of money qualifies as debt. First, repayment of the
transferred funds cannot be contingent upon a future event.
Second, the transfer must be made with a reasonable expectation,
belief, and intent that it be repaid. See Zimmerman v. United
States, 318 F.2d 611 (9th Cir. 1963); Estate of Trompeter v.
Commissioner, T.C. Memo. 1998-35. Whether a transfer is made
with the requisite expectation, belief, and intent is factual.
See John Kelley Co. v. Commissioner, 326 U.S. 521 (1946).
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