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conclude that GXE made its loan to petitioner as GITIC’s agent or
that the GXE loan in substance was a loan from GITIC, we shall
sustain respondent’s determination with respect to 1994.
(b) 1995
The record convincingly establishes that petitioner
erroneously reported interest paid with respect to both the GITIC
and GXE loans as interest paid to GXE on its 1995 Form 5472.
Petitioner’s 1995 general ledger and the September 8, 1998,
letter confirm that petitioner paid interest of $164,762.08 on
the GXE loan and $177,010.41 on the GITIC loan in 1995.
Petitioner reported the sum of these amounts on its 1995 Form
5472. Accordingly, we find that $177,010.41 of the $341,772.49
reported on the 1995 Form 5472 was paid on the GITIC loan and was
not subject to U.S. taxation under the China Agreement.
(c) 1996
The record regarding petitioner’s 1996 interest payments
supports a finding that on its 1996 Form 5472, petitioner
erroneously reported interest paid with respect to both the GITIC
and GXE loans as interest paid to GXE. Petitioner’s 1996 general
ledger and the September 8, 1998, letter are consistent with each
other and reflect that petitioner paid interest of $77,099.91 on
the GXE loan and $139,798.61 on the GITIC loan in 1996. However,
the total interest reported on Form 5472 attached to petitioner’s
1996 Form 1120X did not match the total interest paid to GITIC
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