- 54 -
Petitioner has the burden to prove the transferred funds
constituted loans. See Rule 142(a).20
A loan is “‘an agreement, either expressed or implied,
whereby one person advances money to the other and the other
agrees to repay it upon such terms as to time and rate of
interest, or without interest, as the parties may agree.’” Welch
v. Commissioner, 204 F.3d 1228, 1230 (9th Cir. 2000) (quoting
Commissioner v. Valley Morris Plan, 305 F.2d 610, 618 (9th Cir.
1962), revg. 33 T.C. 572 (1959) and 33 T.C. 720 (1960)), affg.
T.C. Memo. 1998-121. Because receipt of money pursuant to a loan
is offset by a corresponding obligation to repay, a loan is not
taxable income. Commissioner v. Tufts, 461 U.S. 300, 307 (1983).
For a bona fide loan to arise both parties must have had an
actual intent to establish a debtor-creditor relationship at the
time the funds were advanced. Estate of Chism v. Commissioner,
322 F.2d 956, 960 (9th Cir. 1963), affg. Chism Ice Cream Co. v.
Commissioner, T.C. Memo. 1962-6; Fisher v. Commissioner, 54 T.C.
905, 909-910 (1970). Whether the parties intended to establish a
debtor-creditor relationship is determined by the facts and
circumstances. Fisher v. Commissioner, supra at 910. The U.S.
20 The burden of proof does not shift to respondent in this
case pursuant to sec. 7491(a) because petitioner failed to: (1)
Comply with the requirements under the Code to properly
substantiate items; (2) show he maintained all required records;
and (3) show he cooperated with the reasonable requests of
respondent for documents and information.
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