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2. Whether Collateral Was Given To Secure Payment
The January 25, 1999, loan agreement stated that “security
for the loaned funds shall be in the form of, firstly, a lien on
Ronald’s salary as paid by NCPL, and secondly, at an appropriate
time, a mortgage or lien on the property.”23
Although petitioner asserts his salary served as collateral
to secure payment of the funds advanced to SSI for the development
of the Rivercliff property, the salary was not enough to secure a
loan of $4,856,172. Additionally, NCPL did not garnish
petitioner’s wages when he failed to make the payments required by
the loan agreement and the promissory note.
Petitioner asserted that the Rivercliff property also served
as collateral to secure payment. However, the trust deed securing
NCPL’s advances to SSI of $4,856,172 was not executed until August
21, 2001, after the funds secured by the property were advanced.
For a bona fide loan to arise the parties must have so intended at
the time the funds were advanced. Estate of Chism v.
Commissioner, 322 F.2d at 960; Fisher v. Commissioner, 54 T.C. at
909-910.
Petitioner testified that because Kumiko Talmage refused to
sign any document encumbering the Rivercliff property, he was
unable to grant a security interest until after she transferred
23 The June 16, 2000, loan confirmation agreement also
requested petitioner record a mortgage in favor of NCPL.
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Last modified: March 27, 2008