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KTA-Tator, Inc. v. Commissioner

United States Tax Court
108 T.C. 100 (1997)

Written by Brianna Pine, JD

Facts

Kenneth Tator was the president of KTA-Tator, Inc. (KTA) (plaintiff), and he and his wife were KTA’s sole shareholders. In 1991, the Tators began two construction projects: one to expand KTA’s headquarters and the other to construct a new office building. The Tators personally owned both properties and intended to lease them to KTA. KTA’s board authorized the company to loan funds to the Tators for construction and related expenses. During construction, KTA made over 100 advances to the Tators. The advances were not subject to written repayment terms. Once construction was complete, the Tators began repaying KTA’s advances. The repayment schedule for each project delineated monthly payments over 20 years at an interest rate of 8 percent. On its federal income tax returns, KTA did not report any interest income from the advances. The commissioner of the Internal Revenue Service (defendant) assessed a deficiency, asserting that KTA had unreported imputed interest income under § 7872. KTA petitioned the tax court for a redetermination.

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Holding and Reasoning (Foley, J.)

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