# UNITED STATES TAX COURT > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3A72d6fee022ce485c ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text T.C. Memo. 1995-531 UNITED STATES TAX COURT ANTHONY TEONG-CHAN GAW AS TRANSFEREE OF RADCLIFFE INVESTMENT LTD., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ANTHONY TEONG-CHAN GAW AS TRANSFEREE OF BOT BUILDING CORPORATION, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 17906-92, 18268-92. Filed November 9, 1995. John M. Youngquist, Lemoine Skinner III, and Donald L. Feurzeig, for petitioner. Mary E. Wynne and Thomas G. Schleier, for respondent. Table of Contents Page FINDINGS OF FACT I. . . . . . . . . . . . . . . . . . . . . . . 7 General and Background . . . . . . . . . . . . . . . . . A. Radcliffe . . . . . . . . . . . . . . . . . . . . . B. BOT . . . . . . . . . . . . . . . . . . . . . . . . C. Certain Foreign Corporations That Pledged 7 7 9 - 2 Cash Collateral in the Transactions at Issue . . . 1. Pioneer Industries (Holdings) Ltd. and Its Subsidiaries Multi-Credit Finance Co. Ltd. and Mandalay Investments Ltd. . . . . . . . . 2. Traveluck Investments, Inc. . . . . . . . . . 3. Double Wealth Co., Inc. . . . . . . . . . . . 4. Forward Investments, Ltd. . . . . . . . . . . Bangkok Bank Ltd. . . . . . . . . . . . . . . . . Union Bank and Certain of Its Affiliates . . . . . Petitioner . . . . . . . . . . . . . . . . . . . . 10 Transactions Involving Bangkok Bank Ltd. . . . . . . . . A. BB Loan No. 1 . . . . . . . . . . . . . . . . . . . B. BB Loan No. 2 . . . . . . . . . . . . . . . . . . . C. BB Loan No. 3 . . . . . . . . . . . . . . . . . . . 16 16 23 31 III. Transactions Involving Union Bank . . . . . . . . . . . A. UB $570,000 Pre-March 1984 Loan and UB $570,000 Renewed Loan . . . . . . . . . . . B. UB $325,000 Loan . . . . . . . . . . . . . . . . . C. UB $800,000 Radcliffe Loan . . . . . . . . . . . . D. UB $1,300,000 Loan . . . . . . . . . . . . . . . . E. UB $1,830,000 Loan . . . . . . . . . . . . . . . . F. Facts Pertaining to All the Transactions at Issue Involving Union Bank . . . . . . . . . . . 34 IV. Transaction Involving Horbury . . . . . . . . . . . . . 57 V. Income or Loss Reported by Radcliffe and by BOT for the Years at Issue . . . . . . . . . . . 57 OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 I. 59 D. E. F. II. Evidentiary Matters . . . . . . . . . . . . . . . . . . A. The Adverse Inference Rule-Mme. Koo's Failure To Testify . . . . . . . . . . . B. Evidentiary Objections . . . . . . . . . . . . . . 1. Petitioner's Income Tax Returns . . . . . . . 2. Certain Instruments of Transfer and Stock Certificates . . . . . . . . . . . . 3. Horbury Financial Statement . . . . . . . . . 4. Annual Reports of Pioneer and Financial Statements of Multi-Credit . . . . . 5. June 12, 1987 Newspaper Article . . . . . . . 6. August 28, 1987 Memorandum . . . . . . . . . . 7. Paragraph 152 of the Stipulation of Facts . . C. Respondent's Motion To Compel Production of Documents . . . . . . . . . . . . . . 10 11 12 12 12 14 16 34 39 43 48 52 54 60 71 71 72 76 77 78 83 88 88 - 3 II. General Principles Applicable to These Cases . . . . . . 93 A. Taxation of Interest Received by Foreign Corporations--In General . . . . . . . . . 94 B. Substance Over Form and Related Doctrines. ...... . 99 III. Positions of the Parties With Respect To the Transactions at Issue . . . . . . . . . . . . . . 104 A. Bank Transactions . . . . . . . . . . . . . . . . . 104 1. Respondent's Position . . . . . . . . . . . . 104 2. Petitioner's Position . . . . . . . . . . . . 107 a. Petitioner's Principal Arguments . . . . 107 b. Petitioner's Alternative Arguments . . . 110 B. Horbury Transaction . . . . . . . . . . . . . . . . 110 1. Respondent's Position . . . . . . . . . . . . 110 2. Petitioner's Position . . . . . . . . . . . . 111 IV. Resolution of Certain Questions That Relate to All or Some of the Transactions at Issue . . . . . . 112 A. Resolution of Certain Questions That Relate to All the Transactions at Issue . . . . . . 113 1. Relationships Among the Persons Involved in the Transactions at Issue . . . . 113 a. Bank Transactions . . . . . . . . . . . . 113 b. Horbury Transaction . . . . . . . . . . . 116 2. Purpose for the Form of Each of the Transactions at Issue . . . . . . . . . 117 a. Whether the Form of Each of the Transactions at Issue Had a Nontax, Business Purpose . . . . . 117 (1) Bank Transactions . . . . . . . . . 118 (a) Bangkok Bank LA Branch and Union Bank . . . . . . . . 118 (b) Radcliffe and BOT . . . . . . . 123 (c) Foreign Corporations Pledging Collateral . . . . . . 128 (d) Summary . . . . . . . . . . . . 131 (2) Horbury Transaction . . . . . . . . 132 b. Whether the Interest Deductions Claimed by Radcliffe and by BOT Indicate a Tax Avoidance Purpose for Any of the Transactions at Issue . . 133 (1) Bank Transactions . . . . . . . . . 133 (2) Horbury Transaction . . . . . . . . 135 B. Resolution of Certain Questions That Relate Only to the Bank Transactions . . . . . . . 136 1. Whether the Binding Commitment Test of the Step Transaction Doctrine Applies to Any of the Bank Transactions . . . 136 2. Whether the Role of the Banks in Question in the Bank Transactions - 4 May Be Ignored or Recharacterized Even Though the Parties Agree on Brief That Those Banks Were Engaged in Commercial Banking and That They Were Not Controlled By Radcliffe, BOT, or the Foreign Corporations Pledging Collateral . . . . . . . . . . . . . 137 V. Analysis of the Transactions at Issue . . . . . . . . . 139 A. Bank Transactions . . . . . . . . . . . . . . . . . 141 1. BB Loan No. 1 Transaction . . . . . . . . . . 141 2. BB Loan No. 2 Transaction . . . . . . . . . . 147 3. BB Loan No. 3 Transaction . . . . . . . . . . 151 4. UB $570,000 Pre-March 1984 Loan and UB $570,000 Renewed Loan Transactions . . . . 154 5. UB $325,000 Loan Transaction . . . . . . . . . 159 6. UB $800,000 Radcliffe Loan Transaction . . . . 163 7. UB $1,300,000 Loan Transaction . . . . . . . . 168 8. UB $1,830,000 Loan Transaction . . . . . . . . 170 B. Horbury Transaction . . . . . . . . . . . . . . . . 171 VI. Petitioner's Constitutional and Abuse of Discretion Claims . . . . . . . . . . . . . . . 178 A. Petitioner's Constitutional Claim . . . . . . . . . 182 1. Petitioner's Claim That He Was Singled Out . . 183 2. Petitioner's Claim That He Was Singled Out Based on Constitutionally Impermissible Grounds . . . . . . . . . . . . . . . . . . . 187 B. Petitioner's Abuse of Discretion Claims . . . . . . 189 1. Petitioner's Claim That Rev. Rul. 87-89 Should Not Be Applied Retroactively . . . . . 189 2. Petitioner's Claim That Respondent Did Not Comply With Her Duty to Enforce the Federal Tax Law Consistently . . . . . . . 193 VII. Additions to Tax . . . . . . . . . . . . . . . . . . . . 194 MEMORANDUM FINDINGS OF FACT AND OPINION CHIECHI, Judge: In a notice of transferee liability, respondent determined that petitioner is liable as a transferee of Radcliffe Investment Ltd. (Radcliffe) for the following deficiencies in, additions to, and penalties on Radcliffe's withholding tax: - 5 - Year Deficiency Additions to Tax or Penalties Section Section Section Section Section Section 6651(a)1 6653(a)(1) 6653(a)(2) 6653(a)(1)(A) 6653(a)(1)(B) 6656(a) 1984 1985 1986 $16,366 31,085 46,546 $65,466 124,338 186,183 $3,273 6,217 -- * * -- $ --9,309 --* $6,547 12,434 18,618 * 50 percent of the interest due on the portion of the underpayment attributable to negligence. Respondent determined that the entire underpayment was attributable to negligence. In a separate notice of transferee liability, respondent determined that petitioner is liable as a transferee of BOT Building Corp. (BOT) for the following deficiencies in, additions to, and penalties on BOT's withholding tax: Year Deficiency Additions to Tax or Penalties Section Section Section Section Section Section 6651(a) 6653(a)(1) 6653(a)(2) 6653(a)(1)(A) 6653(a)(1)(B) 6656(a) 1984 1985 1986 $23,938 23,435 8,945 $95,751 93,739 35,778 $4,788 4,687 -- * * -- $ --1,789 --* $9,575 9,374 3,578 * 50 percent of the interest due on the portion of the underpayment attributable to negligence. Respondent determined that the entire underpayment was attributable to negligence. The following issues remain for decision: (1) Was the interest paid by Radcliffe and by BOT with respect to the loan2 transactions at issue subject to withholding tax under section 1442(a)? We hold that it was to the extent 1 Unless otherwise indicated, all section references are to the Internal Revenue Code (Code) in effect for the years at issue and all Rule references are to the Tax Court Rules of Practice and Procedure. 2 The words "loan", "lend", "interest", "fund", "funded", "secure", "security", "pledge", "payment", "lien", "guaranteed", "collateral", and similar words are used herein to describe the form of the transactions at issue and do not reflect acceptance by the Court that the substance of the transactions follows the form thereof. - 6 stated herein. (2) Is petitioner liable as a transferee of Radcliffe and of BOT for the withholding tax that we have sustained against them? We hold that he is. (3) Did respondent violate petitioner's right to equal protection of the law under the Fifth Amendment to the Constitution by making the withholding tax determinations that we have sustained against Radcliffe and BOT? (4) We hold that she did not. Did respondent abuse her discretion by making the withholding tax determinations that we have sustained against Radcliffe and BOT? (5) We hold that she did not. Are Radcliffe and BOT liable for the additions to tax for failure to file timely required withholding tax returns? We hold that they are to the extent stated herein. (6) Are Radcliffe and BOT liable for the additions to tax for negligence or disregard of rules or regulations? We hold that they are to the extent stated herein. (7) Are Radcliffe and BOT liable for the penalties for failure to make timely deposits of required withholding tax? We hold that they are to the extent stated herein. (8) Is petitioner liable as a transferee of Radcliffe and of BOT for the additions to tax and penalties that we have sustained against them? We hold that he is. - 7 FINDINGS OF FACT3 Some of the facts have been stipulated and are so found unless otherwise stated herein.4 At the time the petitions were filed, petitioner resided in Hong Kong, British Crown Colony. I. General and Background A. Radcliffe Radcliffe, which was incorporated in Liberia around 1979 and conducted business in California during the years at issue, was organized to invest in New Montgomery South Center (NMSC) in San Francisco, California (San Francisco). As of January 1984, Radcliffe held a 75-percent interest in NMSC. Radcliffe acquired an additional 13-percent interest in NMSC for $1,300,000 in 3 We found the record in these cases to have been poorly developed, inconclusive, and/or not reliable in many respects, including certain material respects. Although the gaps in the evidence are substantial in many instances, and therefore our findings of fact are incomplete in those respects, we have not undertaken to note every instance in which the record does not contain reliable evidence that would have enabled us to find all the facts relevant to our deciding the issues presented. Our task in the face of such a record has been further complicated by the parties' failure to reflect fully the facts that are reliably established by the record and their attempt (particularly petitioner's attempt) to support their respective positions herein by relying on so-called facts that are alleged in their briefs but that are not supported by credible evidence in the record. Statements in briefs are not evidence, Rule 143(b), and we have attached no weight to the parties' allegations on brief that are not supported by reliable evidence in the record. 4 Each party objected to certain stipulations of fact (stipulations) on grounds of relevancy and/or hearsay. We address those objections below. - 8 February 1985 and the remaining 12-percent interest for $1,000,000 in March 1986. Radcliffe also owned an interest in the Meridien Hotel in San Francisco. During relevant periods, NMSC was a California general partnership that was formed to acquire commercial office buildings located at 55 Hawthorne Street and 631 Howard Street in San Francisco. During at least a portion of the years at issue, Lyman Jee (Mr. Jee) was a partner of Radcliffe in NMSC. Petitioner's father, S.C. Gaw, wholly owned Radcliffe as of the time of his death in October 1983. After S.C. Gaw's death, pursuant to discussions and an agreement among petitioner, his mother, and his siblings (family property division), it was determined that petitioner was to receive the stock of Radcliffe that his father had owned, and petitioner acquired all of the stock of Radcliffe no later than July 1984. During relevant periods, petitioner was chairman and president of Radcliffe, and his wife, Rossana W. Gaw (Ms. Gaw) was its secretary and treasurer. During the years at issue, the net worth of Radcliffe (including all loan liabilities) was not less than $6,033,039. Radcliffe was liquidated on December 23, 1986, and all of Radcliffe's corporate assets, which had a net value in excess of liabilities of at least $1,000,000, were transferred to petitioner as its sole shareholder. - 9 B. BOT BOT, which was incorporated in California in 1979 and conducted business there during the years at issue, was organizedto invest in 300 Montgomery Associates (300 Montgomery Associates) in San Francisco. In 1979, BOT acquired an 80- percent interest in 300 Montgomery Associates that it held during the years at issue. During relevant periods, 300 Montgomery Associates was a California general partnership that owned a commercial office building located at 300 Montgomery Street in San Francisco. Mr. Jee was BOT's partner in 300 Montgomery Associates during the years at issue. When BOT was incorporated and throughout the years at issue until December 29, 1986, its sole shareholder was Pempire Investment Ltd. (Pempire), which was incorporated in Liberia on November 6, 1978. Prior to the time at which petitioner acquired all the stock of Pempire, it was wholly owned by Merit Investment Co., Inc. (Merit), which was also incorporated in Liberia. S.C. Gaw wholly owned the stock of Merit as of the time of his death in October 1983. Pursuant to the family property division with his mother and siblings, petitioner acquired all of the stock of Pempire, and therefore acquired indirectly all of the stock of BOT, no later than July 1984. At least during 1984, petitioner was chairman and president of Pempire. During rele- vant periods, petitioner was chairman and president of BOT, and - 10 at least during 1984, Ms. Gaw was vice chairman and secretary of BOT. During the years at issue, the net worth of BOT (including all loan liabilities) was not less than $4,130,695. Pempire was dissolved on December 29, 1986, and its assets, including its stock in BOT, were distributed to petitioner. BOT was liquidated on December 30, 1986, and all of BOT's corporate assets, which had a net value in excess of liabilities of at least $1,000,000, were transferred to petitioner as its sole shareholder. C. Certain Foreign Corporations That Pledged Cash Collateral in the Transactions at Issue 1. Pioneer Industries (Holdings) Ltd. and Its Subsidiaries Multi-Credit Finance Co. Ltd. and Mandalay Investments Ltd. Pioneer Industries (Holdings) Ltd. (Pioneer) was incorporated in Hong Kong, and its stock was publicly traded on the Hong Kong stock exchange from 1970 until at least the time of the trial of these cases. The annual report of Pioneer for its fiscal year ended March 31, 1986, indicated that petitioner, his wife Ms. Gaw, and family trusts of which they and their family were among the beneficiaries held an aggregate of 2,415,092 shares of Pioneer, or 19.2 percent of the 12,566,202 shares issued and outstanding at that time. As of December 1985, an officer of Union Bank believed that petitioner was a major shareholder of Pioneer. During at least a portion of the years at issue, petitioner's mother and - 11 his mother-in-law Mme. Y.C. Koo (Mme. Koo) owned stock in Pioneer. Throughout the years at issue until at least the time of the trial of these cases, petitioner was the managing director and chairman of Pioneer. Petitioner became managing director of Pioneer in 1973 at the behest of Mme. Koo. He became chairman of that company after the death of his father in October 1983. Ms. Gaw also was a director of Pioneer during the years at issue. Prior to and during the years at issue, Pioneer wholly or partially owned a number of corporations, including its two wholly owned subsidiaries Multi-Credit Finance Co. Ltd. (MultiCredit), which was incorporated in Hong Kong, and Mandalay Investments Ltd. (Mandalay). At least prior to the years at issue, petitioner was president and secretary of Multi-Credit. Prior to those years and at least during 1985 and 1986, petitioner was managing director of Multi-Credit, and at least during 1986, Ms. Gaw was one of its directors. At least during 1984, petitioner was president of Mandalay and Ms. Gaw was its executive director and secretary. 2. Traveluck Investments, Inc. Traveluck Investments, Inc. (Traveluck) was incorporated in Liberia, and, at all relevant periods after January 3, 1985, one share of the stock of Traveluck was held in the name of Mme. Koo. At least during 1985, petitioner was a director of Traveluck. - 12 3. Double Wealth Co., Inc. Double Wealth Co., Inc. (Double Wealth) was incorporated in Liberia on January 7, 1985, and, at all relevant periods after January 7, 1985, one share of the stock of Double Wealth was held in the name of Mme. Koo. During the years at issue, petitioner, Ms. Gaw, and Mme. Koo were the directors of Double Wealth. At least during 1985, petitioner was Double Wealth's chairman and president and Ms. Gaw was its secretary and treasurer. 4. Forward Investments, Ltd. Forward Investments, Ltd. (Forward) was incorporated in Liberia on December 3, 1980. During that month, one share of stock of Forward was issued in the name of Mme. Koo. During the years at issue, petitioner, Ms. Gaw, and Mme. Koo were the directors of Forward. At least during 1984 and 1985, Ms. Gaw was the secretary of Forward. As of June 25, 1985, petitioner had given his personal guarantee for $3,800,000 to Standard Chartered Bank, Hong Kong (Standard Chartered Bank HK), an affiliate of Union Bank, as security for credit made available to Forward by Standard Chartered Bank HK. D. Bangkok Bank Ltd. During the years at issue, Bangkok Bank Ltd., a Thai banking corporation, was engaged in the banking business in California and Hong Kong through unincorporated branches located in Los - 13 Angeles (Bangkok Bank LA branch or Los Angeles branch) and Hong Kong (Bangkok Bank HK branch or Hong Kong branch), respectively. During those years, the interest income earned by Bangkok Bank LA branch in its lending activity was effectively connected with the conduct of its banking business in California. Radcliffe began dealing with Bangkok Bank LA branch in May 1984. No later than the years at issue, certain of the foreign corporations that pledged cash collateral in one or more of thetransactions at issue in which the Los Angeles branch and/or the Hong Kong branch of Bangkok Bank Ltd. was involved (viz., Intercontinental Enterprises Corp. of Liberia (Intercontinental), Traveluck, and Double Wealth) maintained at least one account with Bangkok Bank HK branch. Prior to and during the years at issue, Pioneer and at least certain of its subsidiaries, including its wholly owned subsidiaries Multi-Credit and Mandalay, had banking relationships with Bangkok Bank Ltd. Prior to and during the years at issue, Pioneer and at least certain of its subsidiaries, including Mandalay,5 owned stock in Bangkok Bank Ltd.6 The annual reports of Pioneer for its fiscal years ended March 31, 1983, and March 31, 1984, indicated that for each such year (1) Pioneer held 1.6 percent and its subsidiaries held 1.6 5 Mandalay held .91 percent of the equity of Bangkok Bank Ltd. as of Mar. 31, 1984, and .83 percent of that equity as of Mar. 31, 1985, and Mar. 31, 1986. 6 Petitioner notes on brief that Pioneer's subsidiaries included a subsidiary in which Pioneer owned 60 percent of the equity. The record does not disclose whether or not that subsidiary owned any stock in Bangkok Bank Ltd. - 14 percent of the equity of Bangkok Bank Ltd., or a total of 3.2 percent of that equity and (2) the cost of that total equity investment by Pioneer and its subsidiaries was in excess of 10 percent of Pioneer's net assets. The annual report of Pioneer for its fiscal year ended March 31, 1986, indicated that (1) the effective percentage of the equity of Bangkok Bank Ltd. held (a) by Pioneer and (b) by its subsidiaries and corporations in which it owned 20 to 50 percent of the stock (associated corporations) was 1.44 percent and 3.02 percent, respectively, or a total of 4.46 percent and (2) the cost of that total equity investment (a) by Pioneer and (b) by its subsidiaries and associated corporations exceeded 10 percent of the net assets of those companies. A record of Union Bank, dated July 10, 1984, indicated that in 1984 petitioner was both a 10-percent shareholder of Bangkok Bank Ltd. and a member of Bangkok Bank Ltd.'s Advisory Board. Bangkok Bank Ltd. and its Los Angeles and Hong Kong branches desired to accommodate, and were susceptible to influence by, petitioner, Mme. Koo, Radcliffe, Pioneer and its wholly owned subsidiaries Multi-Credit and Mandalay, Intercontinental, Traveluck, and Double Wealth. E. Union Bank and Certain of Its Affiliates During the years at issue, Union Bank, a wholly owned U.S. subsidiary of Standard Chartered Bank PLC, a London-based bank, - 15 was engaged in the banking business in California.7 During those years, Standard Chartered Bank HK and Standard Chartered Bank, Singapore, were affiliates of Union Bank that were engaged in the banking business in Hong Kong and Singapore, respectively. Petitioner, Radcliffe, and BOT began dealing with Union Bank and/or its branches or predecessors in San Francisco in 1979. S.C. Gaw began dealing with Union Bank and/or its branches or predecessors in San Francisco no later than 1979. Prior to the years at issue, S.C. Gaw, and prior to and during those years, petitioner were valued clients of Standard Chartered Bank HK. During relevant periods, Pioneer and at least certain of its subsidiaries, including its wholly owned subsidiaries MultiCredit and Mandalay, were valued clients of Standard Chartered Bank PLC and certain of its subsidiary banks including Standard Chartered Bank HK. No later than the years at issue, certain of the foreign corporations that pledged cash collateral in one or more of the transactions at issue in which Union Bank and its affiliates Standard Chartered Bank HK and/or Standard Chartered Bank, Singapore, were involved (viz., Merit, Forward, and Pempire) maintained at least one account with one or more of those banks. Union Bank and its affiliates Standard Chartered Bank HK and Standard Chartered Bank, Singapore, desired to accommodate, and 7 Although not altogether clear from the record, it appears that prior to the years at issue Standard Chartered Bank PLC and/or a predecessor had been known as the Chartered Bank. - 16 were susceptible to influence by, petitioner, Mme. Koo, Radcliffe, BOT, Pioneer and its wholly owned subsidiaries MultiCredit and Mandalay, Merit, Forward, and Pempire. F. Petitioner Petitioner was a U.S. citizen during the years at issue. Prior to and during those years, petitioner and Mme. Koo had close and amicable business and family relationships. Thus, for example, petitioner was able to borrow from, and give guarantees for more than he was worth to, banks in Hong Kong because those banks knew that Mme. Koo would honor his obligations if the need arose. At the time of the transactions at issue, petitioner was familiar with the U.S. withholding tax requirements applicable to interest from a U.S source that was paid to foreign corporations. II. Transactions Involving Bangkok Bank Ltd. A. BB Loan No. 1 By letter dated May 16, 1984 (May 16, 1984 letter), petitioner requested on behalf of Radcliffe that the Hong Kong branch of Bangkok Bank Ltd. arrange for the Los Angeles branch of that bank to fund a loan of $1,000,000 to Radcliffe. Bangkok Bank HK branch complied with that request, and Bangkok Bank LA branch funded a $1,000,000 loan to Radcliffe on or about May 17, 1984 (original BB Loan No. 1). That loan was due on May 17, 1985. The proceeds of the original BB Loan No. 1 were used to reimburse Bangkok Bank HK branch for settling a claim by Hong Kong and - 17 Shanghai Banking Corp. of San Francisco against Radcliffe under a standby letter of credit issued by that branch with respect to Radcliffe. That reimbursement was effected by having the loan proceeds credited to an account of Bangkok Bank HK branch that was maintained with Bangkok Bank LA branch. To document the original BB Loan No. 1, petitioner signed on behalf of Radcliffe (1) a promissory note that was made payable to Bangkok Bank LA branch and that was in the same amount as that loan, (2) a continuing, unlimited, unconditional promise (continuing, unlimited, unconditional promise) by Radcliffe to Bangkok Bank LA branch that stated that Radcliffe agreed to perform its obligations under that loan, and (3) an agreement (general security agreement) that stated that Bangkok Bank LA branch had a security interest in all of Radcliffe's personal property and in all of its real property pledged to or in the possession of that branch.8 Petitioner also requested on behalf of Radcliffe in the May 16, 1984 letter that Bangkok Bank HK branch issue to Bangkok Bank LA branch a standby letter of credit for $1,000,000 with respect to Radcliffe. Bangkok Bank HK branch complied with that request by issuing on May 17, 1984, the date on or about which the original BB Loan No. 1 was funded, a $1,000,000 standby letter of credit with respect to Radcliffe ($1,000,000 standby letter of 8 The continuing, unlimited, unconditional promise and the general security agreement applied to all other loans and extensions of credit by Bangkok Bank LA branch to Radcliffe. - 18 credit).9 That letter of credit guaranteed the original BB Loan No. 1, was in the same amount as that loan, and expired on May 17, 1985, the same date on which the original BB Loan No. 1 was due. Radcliffe promised in the May 16, 1984 letter to indemnify Bangkok Bank HK branch for any losses whatsoever that it might incur with respect to the $1,000,000 standby letter of credit. In addition to signing the May 16, 1984 letter on behalf of Radcliffe, petitioner signed it in his individual capacity, stating that he "join[ed] in the above guarantee" to Bangkok Bank HK branch reflected in that letter. A deposit of $450,000 in the name of Intercontinental (Intercontinental $450,000 deposit) in Bangkok Bank HK branch was pledged as security for the $1,000,000 standby letter of credit. The interest rate on the original BB Loan No. 1 was initially set at 1.5 percent above Bangkok Bank LA branch's prime rate, but was subsequently reduced, effective November 1, 1984, to .75 9 The parties stipulated that the $1,000,000 standby letter of credit was issued with respect to petitioner. However, the records of the Los Angeles and Hong Kong branches of Bangkok Bank Ltd. unequivocally indicate that the $1,000,000 standby letter of credit was issued with respect to Radcliffe. Although we do not lightly disregard facts stipulated by the parties, we will do so "where justice requires it if the evidence contrary to the stipulation is substantial or the stipulation is clearly contrary to facts disclosed by the record." Cal-Maine Foods, Inc. v. Commissioner, 93 T.C. 181, 195 (1989). We find the parties' stipulation that the $1,000,000 standby letter of credit was issued with respect to petitioner to be clearly contrary to the facts disclosed in the record. Therefore, we will not accept that stipulation. - 19 percent above that bank's prime rate. The interest on that loan was payable by Radcliffe on the last day of each month. The following actual interest rate percentages were applicable to the original BB Loan No. 1 for the following periods: Period Actual Interest Rate Percentage May 17, 1984, until June 25, 1984 June 25, 1984, until Oct. 1, 1984 Oct. 1, 1984, until Oct. 19, 1984 Oct. 19, 1984, until Nov. 1, 1984 Nov. 1, 1984, until Nov. 9, 1984 Nov. 9, 1984, until Dec. 1, 1984 Dec. 1, 1984, until Jan. 2, 1985 Jan. 2, 1985, until May 17, 1985 14.00 14.50 14.25 14.00 12.75 12.50 12.25 11.50 Interest on the original BB Loan No. 1 was paid on the following dates: June 6, 1984 July 5, 1984 Aug. 6, 1984 Aug. 29, 1984 Oct. 4, 1984 Oct. 31, 1984 Dec. 10, 1984 Jan. 14, 1985 Feb. 5, 1985 Mar. 4, 1985 Apr. 8, 1985 May 6, 1985 June 4, 198510 Bangkok Bank LA branch renewed the original BB Loan No. 1 (BB Loan No. 1 first renewal) when it became due on May 17, 1985, and that renewed loan was due on May 16, 1986. To document that loan renewal, petitioner signed on behalf of Radcliffe a promis- 10 The June 4, 1985 interest payment also included interest paid on the first renewal of the original BB Loan No. 1. - 20 sory note that was made payable to Bangkok Bank LA branch and that was in the same amount as that loan. The interest rate on the BB Loan No. 1 first renewal was set at .75 percent above Bangkok Bank LA branch's prime rate. The interest on that re- newed loan was payable by Radcliffe on the first day of each month. By telex dated May 16, 1985, Bangkok Bank HK branch amended its $1,000,000 standby letter of credit in order to renew it to May 17, 1986, one day after the due date of the BB Loan No. 1 first renewal. The following actual interest rate percentages were applicable to the BB Loan No. 1 first renewal for the following periods: Period May 17, 1985, until July 1, 1985 July 1, 1985, until Apr. 1, 1986 Apr. 1, 1986, until Apr. 28, 1986 Apr. 28, 1986, until May 17, 1986 Actual Interest Rate Percentage 10.75 10.25 9.75 9.25 Interest on the BB Loan No. 1 first renewal was paid on the following dates: June 4, 1985 July 10, 1985 Aug. 4, 1985 Sept. 3, 1985 Oct. 4, 1985 Nov. 5, 1985 Dec. 10, 1985 Jan. 6, 1986 Feb. 10, 1986 - 21 Mar. 10, 1986 Apr. 4, 1986 May 7, 1986 June 16, 198611 On May 16, 1986, Radcliffe reduced the principal amount of the BB Loan No. 1 first renewal to $600,000 by paying $400,000 to Bangkok Bank LA branch. By letter dated May 15, 1986, petitioner requested on behalf of Radcliffe that Bangkok Bank HK branch reduce its $1,000,000 standby letter of credit to $600,000 and renew it for another year. Bangkok Bank HK branch complied with that request by amending the $1,000,000 standby letter of credit to reduce it to $600,000 and renewing the amended $600,000 letter of credit to May 17, 1987. On June 30, 1986, pursuant to instructions from Intercontinental, the Hong Kong branch of Bangkok Bank Ltd. telexed the following instructions to the Los Angeles branch of that bank: The Los Angeles branch was to debit the account it maintained for the Hong Kong branch by $450,000, and that money was to be applied in partial repayment of the then outstanding $600,000 loan balance. On June 30, 1986, that balance was reduced to $150,000 by the payment of $450,000.12 11 The June 16, 1986 interest payment also included interest paid for the period following the due date of the BB Loan No. 1 first renewal. 12 Petitioner admits on brief, and respondent does not dispute, that on June 30, 1986, the Intercontinental $450,000 deposit was applied to reduce the $600,000 outstanding balance of that loan (continued...) - 22 On or about July 1, 1986, Bangkok Bank LA branch renewed its outstanding $150,000 loan to Radcliffe and that renewed loan was due on June 30, 1987.13 By letter dated June 26, 1986, peti- tioner requested on behalf of Radcliffe that Bangkok Bank HK branch reduce its then outstanding standby letter of credit to $150,000 and renew it to June 30, 1987. Bangkok Bank HK branch complied with that request by amending its standby letter of credit to reduce it to $150,000 and renewing the amended $150,000 letter of credit to June 30, 1987. On January 14, 1987, the outstanding $150,000 loan balance was repaid. On or about March 3, 1987, Bangkok Bank HK branch canceled its outstanding $150,000 standby letter of credit with respect to that loan. For the period that commenced on May 16, 1986, the date on which the BB Loan No. 1 first renewal was due, until January 14, 1987, the date on which the then outstanding $150,000 loan balance was repaid, interest on the then outstanding balance of 12 (...continued) to $150,000. We accept the parties' agreement on this point for purposes of our Opinion, even though the record does not establish whether (1) Bangkok Bank HK branch applied $450,000 of its then outstanding standby letter of credit to reduce the then outstanding $600,000 loan balance to $150,000 and immediately thereafter reimbursed itself with the Intercontinental $450,000 deposit or (2) the Intercontinental $450,000 deposit was directly applied to reduce the then outstanding balance of that loan to $150,000. 13 The record does not disclose the terms of any renewal after the BB Loan No. 1 first renewal became due on May 16, 1986, and before it was renewed in a reduced principal amount on or about July 1, 1986. - 23 that loan was set at a rate that was .75 percent above Bangkok Bank LA branch's prime rate and interest was payable on the first day of each month. During the period May 16, 1986, until January 14, 1987, the following actual interest rate percentages were applicable to the Bangkok Bank Los Angeles branch loan to Radcliffe for the following periods: Actual Interest Rate Percentage Period May 16, 1986, until Sept. 10, 1986 Sept. 10, 1986, until Jan. 14, 1987 9.25 8.25 Interest on that loan was paid on the following dates: June 16, 1986 July 9, 1986 Aug. 8, 1986 Sept. 12, 1986 Oct. 14, 1986 Nov. 17, 1986 Dec. 5, 1986 Jan. 12, 1987 Jan. 14, 1987 (Hereinafter, the original BB Loan No. 1 and the renewals of that loan will be referred to collectively as BB Loan No. 1.) B. BB Loan No. 2 By letter dated May 23, 1985, petitioner requested on behalf of Radcliffe that the Hong Kong branch of Bangkok Bank Ltd. arrange for the Los Angeles branch of that bank to fund a loan of $1,625,000 to Radcliffe (BB $1,625,000 Loan No. 2). Bangkok Bank HK branch complied with that request, and Bangkok Bank LA branch funded a $1,625,000 loan to Radcliffe on June 11, 1985. loan was due on June 11, 1986. That The proceeds of BB $1,625,000 - 24 Loan No. 2 were credited to the account of Bangkok Bank HK branch with Bangkok Bank LA branch.14 To document BB $1,625,000 Loan No. 2, petitioner signed on behalf of Radcliffe a promissory note that was made payable to Bangkok Bank LA branch and that was in the same amount as that loan. The continuing, unlimited, unconditional promise and the general security agreement signed by petitioner on behalf of Radcliffe as part of the BB Loan No. 1 transaction applied to BB $1,625,000 Loan No. 2, as well as to the increase in that loan and the renewal of that increased loan. BB $1,625,000 Loan No. 2 was secured by a $1,625,000 certificate of deposit issued by Bangkok Bank LA branch in the name of Traveluck (Traveluck $1,625,000 CD). That certificate of deposit was issued on June 11, 1985,15 the same date on which BB $1,625,000 Loan No. 2 was funded, and was to mature on June 11, 1986, the same date on which BB $1,625,000 Loan No. 2 was due. Throughout the period June 11, 1985, until July 11, 1985, Bangkok Bank LA branch blocked the deposit represented by the Traveluck $1,625,000 CD so that it could not be withdrawn by Traveluck. The interest rate on BB $1,625,000 Loan No. 2 was set at .5 14 A financial statement of Radcliffe, dated Mar. 31, 1985, and signed by petitioner, indicated that a $1,625,000 loan was outstanding from Intercontinental to Radcliffe and that that loan was to be replaced with a loan from Bangkok Bank LA branch. 15 The deposit in the name of Traveluck that was used to purchase the Traveluck $1,625,000 CD was made in Bangkok Bank LA branch on June 11, 1985, the same date on which BB $1,625,000 Loan No. 2 was funded. - 25 percent above the interest rate on the Traveluck $1,625,000 CD. The interest rate on BB $1,625,000 Loan No. 2 was 8.25 percent, and the interest rate on the Traveluck $1,625,000 CD was 7.75 percent. At the special request of Radcliffe, the interest on BB $1,625,000 Loan No. 2 was made payable on a monthly basis on the 11th of each month, and, at the special request of Traveluck, the interest on the Traveluck $1,625,000 CD was made payable on a monthly basis on the 11th of each month. On July 10, 1985, Bangkok Bank HK branch forwarded to Bangkok Bank LA branch instructions from Traveluck (July 10, 1985 instructions) that the deposit in Bangkok Bank LA branch that was represented by the Traveluck $1,625,000 CD was to be transferred to an account in the name of Double Wealth. The July 10, 1985 instructions from Traveluck also directed Bangkok Bank LA branch to remit the interest payable on the Traveluck $1,625,000 CD for the one-month period June 11, 1985, until July 11, 1985, to Traveluck's account with Bangkok Bank HK branch. Pursuant to the July 10, 1985 instructions, on or about July 11, 1985, (1) the deposit in Bangkok Bank LA branch that was represented by the Traveluck $1,625,000 CD was transferred from the account in the name of Traveluck to an account in the name of Double Wealth; (2) Bangkok Bank LA branch issued to Double Wealth a certificate of deposit (Double Wealth $1,625,000 CD) that was in the same amount for which the Traveluck $1,625,000 CD had been issued and that matured on August 12, 1985; and (3) pursuant to a - 26 decision of the board of directors of Double Wealth (viz., petitioner, Ms. Gaw, and Mme. Koo), the $1,625,000 certificate of deposit in the name of Double Wealth and the renewals of that certificate of deposit were pledged as security for BB $1,625,000 Loan No. 2 and the renewal of that loan.16 When the Double Wealth $1,625,000 CD matured on August 12, 1985, Bangkok Bank LA branch issued a second certificate of deposit to Double Wealth in the amount of $1,625,000 that matured on September 12, 1985. From July 11, 1985, until that second certificate of deposit matured, the interest rate on BB $1,625,000 Loan No. 2 was set at 7.5 percent, which was .5 percent above the 7 percent interest rate on both of the $1,625,000 certificates of deposit issued to Double Wealth. When the second $1,625,000 certificate of deposit issued to Double Wealth matured on September 12, 1985, Bangkok Bank LA branch issued a third certificate of deposit to Double Wealth in the amount of $1,625,000 that matured on June 11, 1986, the same date on which BB $1,625,000 Loan No. 2 was due. During the period September 12, 1985, until June 11, 1986, the interest rate on that third certificate of deposit was set at .5 percent below 16 The decision of Double Wealth's board of directors was documented by minutes of a meeting of that board signed by Mme. Koo as chairman of that meeting. The pledge of the $1,625,000 certificate of deposit in the name of Double Wealth was documented by a pledge executed by Ms. Gaw and witnessed by Mme. Koo. - 27 the interest rate on BB $1,625,000 Loan No. 2.17 During that period, the interest rate on BB $1,625,000 Loan No. 2 was 8.25 percent and the interest rate on the third Double Wealth certificate of deposit was 7.75 percent. Interest on that loan was paid on the following dates: July 15, 1985 Aug. 12, 1985 Sept. 12, 1985 Oct. 15, 1985 Nov. 14, 1985 Dec. 12, 1985 Jan. 14, 1986 Feb. 13, 1986 Mar. 11, 1986 Apr. 14, 1986 May 12, 1986 Throughout the period July 11, 1985, until June 11, 1986, during which the three certificates of deposit in the name of Double Wealth served as security for BB $1,625,000 Loan No. 2, Bangkok Bank LA branch blocked the deposit represented thereby so that it could not be withdrawn by Double Wealth. Pursuant to instructions of petitioner and Ms. Gaw on behalf of Double Wealth, Bangkok Bank LA branch credited monthly to Double Wealth's account with Bangkok Bank HK branch the interest payable for the period August 1985 through May 1986 on the cer- 17 By telex dated Aug. 17, 1985, Bangkok Bank HK branch informed Bangkok Bank LA branch that Radcliffe preferred that the interest rate on BB $1,625,000 Loan No. 2 be set at 8.25 percent until that loan became due on June 11, 1986. That telex further stated that "we [Bangkok Bank HK branch] understand * * * [setting the interest rate on BB $1,625,000 Loan No. 2 at 8.25 percent] means the deposit interest rate will also be fixed at 7.75 * * * [percent] until 11 Jun 86". Bangkok Bank LA branch acceded to Radcliffe's wishes. - 28 tificates of deposit in the name of Double Wealth. Interest on the certificates of deposit in the name of Double Wealth was paid on the following dates: Aug. 12, 1985 Sept. 12, 1985 Oct. 15, 1985 Nov. 13, 1985 Dec. 11, 1985 Jan. 13, 1986 Feb. 11, 1986 Mar. 11, 1986 Apr. 11, 1986 May 13, 1986 On April 16, 1986, BB $1,625,000 Loan No. 2 was increased by $400,000 to $2,025,000 (BB $2,025,000 Loan No. 2). The increase in the loan amount was secured by a $400,000 certificate of deposit (Double Wealth $400,000 CD) in Bangkok Bank LA branch in the name of Double Wealth.18 The Double Wealth $400,000 CD matured on June 11, 1986, the same date on which BB $2,025,000 Loan No. 2 was due and the same date on which the third $1,625,000 certificate of deposit in the name of Double Wealth that also served as security for that loan matured. From the time the Double Wealth $400,000 CD was issued on April 16, 1986, until it matured on June 11, 1986, Bangkok Bank LA branch blocked the deposit represented thereby so that it could not be withdrawn by Double Wealth. 18 The $400,000 deposit in the name of Double Wealth that was used to purchase the Double Wealth $400,000 CD was made in Bangkok Bank LA branch on Apr. 14, 1986. - 29 The $400,000 increase in the loan amount bore interest at a rate that was set at .5 percent above the interest rate on the Double Wealth $400,000 CD. The interest rate on the increase in the loan amount was 8.25 percent, and the interest rate on the Double Wealth $400,000 CD was 7.75 percent. Interest on BB $2,025,000 Loan No. 2 was paid on May 12, 1986, and June 16, 1986. On May 13, 1986, Bangkok Bank LA branch credited to Double Wealth's account with Bangkok Bank HK branch the interest payable on the Double Wealth $400,000 CD. On May 26, 1986, and on June 9, 1986, Ms. Gaw and petitioner, respectively, sent instructions to Bangkok Bank LA branch on behalf of Double Wealth (May 26, 1986 and June 9, 1986 instructions) to remit on a monthly basis the interest payable on the Double Wealth $1,625,000 and $400,000 certificates of deposit through Standard Chartered Bank, New York, to the account of Vidda Investment Ltd. (Vidda) that was maintained in Standard Chartered Bank HK. On June 11, 1986, Bangkok Bank LA branch followed those instructions and remitted to that account of Vidda the June 1986 interest payable on those certificates of deposit. When BB $2,025,000 Loan No. 2 became due on June 11, 1986, it was renewed, and the renewed loan was due on September 12, 1986. When the Double Wealth $1,625,000 and $400,000 certifi- cates of deposit matured on June 11, 1986, they were combined - 30 into one certificate of deposit in the amount of $2,025,000 (Double Wealth $2,025,000 CD) that was issued in the name of Double Wealth and that matured on September 12, 1986, the same date on which BB $2,025,000 Loan No. 2 as renewed was due. During the period June 11, 1986, until September 12, 1986, the interest rate on BB $2,025,000 Loan No. 2 was set at .5 percent above the interest rate on the Double Wealth $2,025,000 CD. The interest rate on BB $2,025,000 Loan No. 2 as renewed was 7 percent, and the interest rate on the Double Wealth $2,025,000 CD was 6.5 percent. Interest on that loan was paid on July 14, 1986, August 15, 1986, and September 12, 1986. From the time the Double Wealth $2,025,000 CD was issued on June 11, 1986, until September 12, 1986, when its proceeds were used to repay BB $2,025,000 Loan No. 2 as renewed, Bangkok Bank LA branch blocked the deposit represented thereby so that it could not be withdrawn by Double Wealth. Pursuant to the May 26, 1986 and June 9, 1986 instructions, on July 14, 1986, and August 12, 1986, Bangkok Bank LA branch remitted the interest payable on the Double Wealth $2,025,000 CD to the account of Vidda in Standard Chartered Bank HK. Pursuant to the instructions of Ms. Gaw, on September 12, 1986, BB $2,025,000 Loan No. 2 as renewed was repaid with the proceeds represented by the Double Wealth $2,025,000 CD. Ms. Gaw directed that the interest payable on that certificate of deposit - 31 as of September 12, 1986, be transferred to Bangkok Bank HK branch for the account of Double Wealth. Interest on that cer- tificate of deposit was paid on September 12, 1986. (Herein- after, BB $1,625,000 Loan No. 2, the $400,000 increase in that loan, and BB $2,025,000 Loan No. 2 as renewed will be referred to collectively as BB Loan No. 2.) C. BB Loan No. 3 Petitioner requested on behalf of Radcliffe that the Hong Kong branch of Bangkok Bank Ltd. arrange for the Los Angeles branch of that bank to fund a loan of $1,000,000 to Radcliffe (BB Loan No. 3). Bangkok Bank HK branch complied with that request, and Bangkok Bank LA branch funded a $1,000,000 loan to Radcliffe on November 12, 1985. That loan was due on November 12, 1986. The proceeds of BB Loan No. 3 were credited to the account of Bangkok Bank HK branch with Bangkok Bank LA branch. To document that loan, petitioner signed on behalf of Radcliffe a promissory note that was made payable to Bangkok Bank LA branch and that was in the same amount as that loan. The continuing, unlimited, unconditional promise and the general security agreement signed by petitioner on behalf of Radcliffe as part of the BB Loan No. 1 transaction applied to BB Loan No. 3. Pursuant to a decision on October 28, 1985, of the board of directors of Double Wealth (viz., petitioner, Ms. Gaw, and Mme. Koo), a $1,000,000 certificate of deposit issued by Bangkok Bank - 32 LA branch in the name of Double Wealth (Double Wealth $1,000,000 CD) was pledged as security for BB Loan No. 3.19 That certifi- cate of deposit was issued on November 12, 1985, the same date on which BB Loan No. 3 was funded, and matured on November 12, 1986, the same date on which BB Loan No. 3 was due.20 From the time the Double Wealth $1,000,000 CD was issued on November 12, 1985, until its proceeds were used on September 12, 1986, to repay BB Loan No. 3, Bangkok Bank LA branch blocked the deposit represented thereby so that it could not be withdrawn by Double Wealth. The interest rate on BB Loan No. 3 was set at .5 percent above the interest rate on the Double Wealth $1,000,000 CD. The interest rate on BB Loan No. 3 was 8.25 percent, and the interest rate on that certificate of deposit was 7.75 percent. The inter- est on BB Loan No. 3 was made payable on a monthly basis on the 12th of each month, and the interest on the Double Wealth $1,000,000 CD was made payable on a monthly basis on the 11th of 19 The decision of Double Wealth's board of directors was documented by minutes of a meeting of that board signed by Mme. Koo as chairman of that meeting. Mme. Koo and Ms. Gaw signed on behalf of Double Wealth an application, dated Nov. 12, 1985, for a time deposit in the amount of $1,000,000. In addition, Mme. Koo signed on behalf of Double Wealth a Form W-8, Certificate of Foreign Status, dated Nov. 12, 1985, that was furnished to Bangkok Bank LA branch in connection with the Double Wealth $1,000,000 CD. 20 The deposit in the name of Double Wealth that was used to purchase the Double Wealth $1,000,000 CD was made in Bangkok Bank LA branch on or about Nov. 12, 1985, the date on which BB Loan No. 3 was funded. - 33 each month. Interest on that loan was paid on the following dates: Dec. 13, 1985 Jan. 14, 1986 Feb. 13, 1986 Mar. 10, 1986 Apr. 14, 1986 May 12, 1986 June 16, 1986 July 14, 1986 Aug. 15, 1986 Sept. 12, 1986 Pursuant to the instructions of petitioner on behalf of Double Wealth, Bangkok Bank LA branch credited monthly to Double Wealth's account with that branch the interest payable on the Double Wealth $1,000,000 CD for the period December 1985 through May 1986. Interest on that certificate of deposit was paid on the following dates: Dec. Jan. Feb. Mar. Apr. May 11, 1985 13, 1986 11, 1986 11, 1986 11, 1986 13, 1986 In the May 26, 1986 and June 9, 1986 instructions, Ms. Gaw and petitioner, respectively, instructed Bangkok Bank LA branch on behalf of Double Wealth to remit on a monthly basis the interest payable on the Double Wealth $1,000,000 CD through Standard Chartered Bank, New York, to the account of Vidda that was maintained in Standard Chartered Bank HK. Pursuant to those instructions, on June 11, 1986, July 14, 1986, and August 12, 1986, Bangkok Bank LA branch remitted the interest payable on - 34 that certificate of deposit to that account. Pursuant to the instructions of Ms. Gaw, BB Loan No. 3 was repaid on September 12, 1986, with the proceeds represented by the Double Wealth $1,000,000 CD. Ms. Gaw directed that the interest payable on that certificate of deposit as of September 12, 1986, be transferred to Bangkok Bank HK branch for the account of Double Wealth. Interest on that certificate of deposit was paid on September 12, 1986. III. Transactions Involving Union Bank A. UB $570,000 Pre-March 1984 Loan and UB $570,000 Renewed Loan In or about February 1979, Union Bank funded a loan of $570,000 to BOT (UB $570,000 pre-March 1984 loan). The UB $570,000 pre-March 1984 loan was periodically renewed and was still outstanding in March 1984. From the time it was funded in 1979 until March 1984, the UB $570,000 pre-March 1984 loan was secured by $570,000 of a Eurodollar deposit in the name of Merit (Merit $570,000 deposit) in Standard Chartered Bank HK.21 21 Although the parties do not make it altogether clear that the interest paid by BOT to Union Bank during 1984 with respect to the UB $570,000 pre-March 1984 loan while it was secured by the Merit $570,000 deposit is at issue in these cases, it appears, and we assume, that that interest was included in respondent's determinations. The parties make general and sweeping contentions with respect to the transactions at issue involving Union Bank and the foreign corporations that pledged cash collateral in those transactions, and we construe their contentions to include the UB $570,000 pre-March 1984 loan and Merit, unless they refer to a specific transaction or foreign corporation other than (continued...) - 35 Throughout the period in 1984 during which the UB $570,000 pre-March loan was outstanding, it bore interest at Union Bank's London interbank offered rate (LIBOR) plus 1.5 percent or its prime rate plus 1 percent. During 1984, the interest on the UB $570,000 pre-March 1984 loan was payable (1) at the maturity of any period during which a LIBOR-based interest rate was in effect for no more than 180 days or (2) monthly for any period during which a prime rate-based interest rate was in effect. Interest on the UB $570,000 pre-March 1984 loan was paid in January, February, and March 1984.22 In March 1984, the UB $570,000 pre-March 1984 loan was renewed by Union Bank (original UB $570,000 renewed loan), and a $570,000 Asian dollar deposit in the name of Forward (Forward $570,000 deposit) was made in Standard Chartered Bank, Singapore, was substituted for the Merit $570,000 deposit, and was pledged as security for that loan.23 Interest on that loan was paid 21 (...continued) Merit. 22 The March 1984 interest payment with respect to the Union Bank $570,000 loan to BOT does not appear to be broken down between (1) the interest that was paid on that loan for the portion of that month during which it was secured by the Merit $570,000 deposit and (2) the interest that was paid on it for the portion of that month during which it was secured by the $570,000 deposit in the name of Forward. 23 The parties stipulated that the UB $570,000 pre-March 1984 loan was renewed in March 1984. However, the record contains no Union Bank documents that indicate that a renewal of that loan (continued...) - 36 monthly to Union Bank. Pursuant to a decision on March 15, 1984, of the board of directors of Forward (viz., petitioner, Ms. Gaw, and Mme. Koo), the Forward $570,000 deposit was pledged as security for the $570,000 loan to BOT that Union Bank had funded.24 Throughout the period March 1984 until July 10, 1986, during which the Forward $570,000 deposit served as security for that loan and the renewals thereof, Union Bank maintained a lien on that deposit. Union Bank renewed the original UB $570,000 renewed loan on four additional occasions for periods that ended on the following dates: July 15, 1985 (UB $570,000 renewed loan first renewal), October 10, 1985 (UB $570,000 renewed loan second renewal), April 10, 1986 (UB $570,000 renewed loan third renewal), and July 10, 1986 (UB $570,000 renewed loan final renewal). To document each of the first three additional renewals, petitioner signed on 23 (...continued) occurred in that month. The documents in the record indicate that the UB $570,000 pre-March 1984 loan was renewed in July or August 1983 and that it was due on July 15, 1984. The next renewal of the Union Bank $570,000 loan to BOT concerning which documents are in the record occurred in July or August 1984. It is possible that a renewal of the UB $570,000 pre-March 1984 loan could have occurred in connection with the replacement of the Merit $570,000 deposit as its security that occurred in March 1984. Accordingly, we do not find the parties' stipulation that the UB $570,000 pre-March 1984 loan was renewed in March 1984 to be clearly contrary to the facts disclosed in the record. Consequently, we will accept that stipulation under the test of CalMaine Foods, Inc. v. Commissioner, 93 T.C. at 195-196. 24 The pledge of the Forward $570,000 deposit was documented by a security agreement signed by Mme. Koo on behalf of Forward. - 37 behalf of BOT a promissory note that was made payable to Union Bank and that was in the same amount as that loan. The interest rate on the UB $570,000 renewed loan first renewal was set at Union Bank's LIBOR plus 1.5 percent or its prime rate plus 1 percent. The interest rate on the UB $570,000 renewed loan second and third renewals was set at Union Bank's LIBOR plus 1.5 percent or its reference rate25 plus 1 percent. The interest rate on the UB $570,000 renewed loan final renewal was set at Union Bank's reference rate plus 1 percent. The first three renewals of the UB $570,000 renewed loan were to bear interest at Union Bank's LIBOR plus 1.5 percent if, in general, BOT informed Union Bank that it wished to pay interest at that rate and specified the period for which that rate was to be in effect. That period could have been between one and six months for the UB $570,000 renewed loan first and third renewals and one and three months for the UB $570,000 renewed loan second renewal. If BOT did not so advise Union Bank, the UB $570,000 renewed loan was to bear interest at (1) the prime rate plus 1 percent in the case of the UB $570,000 renewed loan first renewal and (2) the reference rate plus 1 percent in the case of the UB $570,000 renewed loan second and third renewals. 25 The record does not make clear the difference, if any, between Union Bank's prime rate and its reference rate. Certain Union Bank documents suggest that Union Bank personnel may have used the terms interchangeably. - 38 The promissory note petitioner signed on behalf of BOT to document the UB $570,000 renewed loan first renewal provided that the interest rate on that loan was not to be less than 1 percent more than the annualized effective interest rate on the bank deposit pledged to secure that loan. That note also provided that the interest on that loan was payable by BOT semiannually if the UB $570,000 renewed loan first renewal bore interest at Union Bank's LIBOR plus 1.5 percent and monthly if that loan bore interest at the prime rate plus 1 percent. The promissory note documenting the UB $570,000 renewed loan second renewal provided that the interest on that loan was payable by BOT on the first of each month. The promissory note documenting the UB $570,000 renewed loan third renewal provided that the interest on that renewal was payable by BOT on the 10th of each month. The interest on the UB $570,000 renewed loan final renewal was also payable by BOT on the 10th of each month. The actual interest rate percentages (percentage interest rates) that were derived from Union Bank's LIBOR, prime, or reference rates, as the case may be, and (1) that were applicable to the UB $570,000 renewed loan third renewal were 10.5 percent as of December 31, 1985, and 10 percent as of March 7, 1986, and (2) that were applicable to the UB $570,000 renewed loan final renewal were 10 percent initially and 9.5 percent as of April 21, 1986, where the percentage interest rate remained for the balance - 39 of the period during which that renewal was outstanding. Except for August 1984, September and November 1985, and May 1986, interest on the UB $570,000 renewed loan first through final renewals was paid monthly.26 On July 10, 1986, the UB $570,000 renewed loan final renewal was repaid with funds wired to Union Bank from Standard Chartered Bank HK, and Union Bank released its lien on the Forward $570,000 deposit. (Hereinafter, the original UB $570,000 renewed loan and the renewals of that loan will be referred to collectively as the UB $570,000 renewed loan.) B. UB $325,000 Loan In April 1984, Union Bank funded a loan of $325,000 to Radcliffe (original UB $325,000 loan) that was due on April 15, 1985. The original UB $325,000 loan was used to reduce to $1,125,000 a loan in the amount of $1,450,000 that had been made to NMSC by Union Bank or one of its branches or predecessors in San Francisco and that was secured by a second deed of trust on NMSC's buildings. To document the original UB $325,000 loan, petitioner signed on behalf of Radcliffe a promissory note that was made payable to Union Bank and that was in the same amount as that loan. 26 After Dec. 31, 1985, interest on the UB $570,000 renewed loan third renewal was paid on or about Jan. 24, 1986, Feb. 21, 1986, Mar. 10, 1986, and Apr. 10, 1986. Interest on the UB $570,000 renewed loan final renewal was paid on or about Apr. 22, 1986, June 30, 1986, and July 10, 1986. - 40 Pursuant to a decision on April 12, 1984, of the board of directors of Forward (viz., petitioner, Ms. Gaw, and Mme. Koo), a $325,000 fixed deposit in the name of Forward (Forward $325,000 deposit) was pledged as security for the original UB $325,000 loan and all renewals of that loan.27 That deposit was in the same amount as that loan and was maintained in Standard Chartered Bank HK.28 Throughout the period April 1984 until July 10, 1986, during which the Forward $325,000 deposit served as security for the original UB $325,000 loan and the renewals of that loan, Union Bank maintained a lien on that deposit. The interest rate on the original UB $325,000 loan was set at Union Bank's LIBOR plus 1.5 percent or its prime rate plus 1 percent. The original UB $325,000 loan was to bear interest at Union Bank's LIBOR plus 1.5 percent if Radcliffe selected that rate in a manner essentially the same as that described above 27 The pledge of the Forward $325,000 deposit was documented by a security agreement signed by Mme. Koo on behalf of Forward. 28 The parties stipulated that the Forward $325,000 deposit was maintained in Standard Chartered Bank HK. Certain records of Union Bank indicate that that deposit was placed with Standard Chartered Bank, Singapore, through Standard Chartered Bank HK. Other records of Union Bank concerning that loan do not indicate the affiliate of Union Bank in which that deposit was maintained. We find the meaning of those Union Bank records unclear, and, accordingly, we do not find the parties' stipulation that the Forward $325,000 deposit was maintained in Standard Chartered Bank HK to be clearly contrary to the facts disclosed in the record. Consequently, we will accept that stipulation under the test of Cal-Maine Foods, Inc. v. Commissioner, 93 T.C. at 195196. - 41 with respect to the UB $570,000 renewed loan first through third renewals. The period for which that rate was to be in effect could have been between one and six months. If Radcliffe did not select the LIBOR-based rate, the UB original $325,000 loan was to bear interest at Union Bank's prime rate plus 1 percent. The promissory note documenting that loan provided that the interest on that loan was payable by Radcliffe (1) at the maturity of any period during which a LIBOR-based interest rate was in effect for no more than six months and (2) monthly on the 15th day of each month for any period during which a prime rate-based rate was in effect. Union Bank renewed the original UB $325,000 loan on two occasions for periods that ended on the following dates: April 10, 1986 (UB $325,000 loan first renewal) and July 10, 1986 (UB $325,000 loan final renewal). To document the UB $325,000 loan first renewal, petitioner signed on behalf of Radcliffe a promissory note that was made payable to Union Bank and that was in the same amount as that loan. The interest rate on the UB $325,000 loan first renewal was set at Union Bank's LIBOR plus 1.5 percent or its prime rate plus 1 percent. That renewal was to bear interest at the LIBOR-based rate if that rate were selected by Radcliffe in a manner essentially the same as that described above with respect to the UB $570,000 renewed loan first through third renewals. If Radcliffe - 42 did not select the LIBOR-based interest rate, the UB $325,000 loan first renewal was to bear interest at Union Bank's prime rate plus 1 percent. The promissory note documenting the UB $325,000 loan first renewal provided that the interest due on that renewal was payable by Radcliffe on the 10th of each month. The following percentage interest rates were applicable for the following periods with respect to the UB $325,000 loan first renewal: Period Apr. 15, 1985, until May 20, 1985 May 20, 1985, until June 18, 1985 June 18, 1985, until Mar. 7, 1986 Mar. 7, 1986, until Apr. 10, 1986 Percentage Interest Rate 11.5 11.0 10.5 10.0 Interest on the UB $325,000 loan first renewal was paid on or about the following dates: May 14, 1985 June 12, 1985 July 10, 1985 Aug. 13, 1985 Sept. 13, 1985 Oct. 16, 1985 Nov. 18, 1985 Dec. 11, 1985 Jan. 23, 1986 Feb. 18, 1986 Mar. 12, 1986 Apr. 22, 198629 The interest rate on the UB $325,000 loan final renewal was set at Union Bank's reference rate plus 1 percent and was payable 29 The Apr. 22, 1986 interest payment also included interest paid on the UB $325,000 loan final renewal. - 43 by Radcliffe on the 10th of each month. The percentage interest rate applicable to the UB $325,000 loan final renewal was initially 10 percent, and, as of April 21, 1986, it was 9.5 percent where it remained for the balance of the period during which that renewal was outstanding. Interest on the UB $325,000 loan final renewal was paid on or about the following dates: April 22, 1986, June 30, 1986, and July 10, 1986. The UB $325,000 loan final renewal was repaid on July 10, 1986, using funds wired to Union Bank from Standard Chartered Bank HK, and Union Bank released its lien on the Forward $325,000 deposit. (Hereinafter, the original UB $325,000 loan and the re- newals of that loan will be referred to collectively as the UB $325,000 loan.) C. UB $800,000 Radcliffe Loan On or about June 27, 1985, at the request of petitioner, Radcliffe assumed a loan of $800,000 (original UB $800,000 Radcliffe loan). The loan assumed by Radcliffe had been made to NMSC by Union Bank or one of its branches or predecessors in San Francisco (UB $800,000 NMSC loan) sometime prior to the years at issue and had been secured by a fixed deposit in the same amount as that loan that was maintained in Standard Chartered Bank HK in the name of Multi-Credit.30 30 The original UB $800,000 Radcliffe In 1983, pursuant to a request made on behalf of the Gaw family, Union Bank released its lien on the Multi-Credit fixed (continued...) - 44 loan was due on April 10, 1986. To document that loan, peti- tioner signed on behalf of Radcliffe a promissory note that was made payable to Union Bank and that was in the same amount as that loan. Pursuant to a decision on June 6, 1985, of the board of directors of Multi-Credit, of which petitioner was managing director, an $800,000 fixed deposit in the name of Multi-Credit in Standard Chartered Bank HK and all renewals of that deposit (Multi-Credit $800,000 deposit)31 were pledged as security for the original UB $800,000 Radcliffe loan and the renewal of that loan. The Multi-Credit $800,000 deposit was in the same amount as that loan and was maintained in Standard Chartered Bank HK until March 5, 1986, when that deposit was transferred to Standard Chartered Bank, Singapore.32 Throughout the period from on or about June 27, 1985, until July 23, 1986, during which the Multi-Credit $800,000 deposit served as security for the original 30 (...continued) deposit that was securing the UB $800,000 NMSC loan during MultiCredit's two-week financial reporting period. 31 The $800,000 deposit in the name of Multi-Credit had been made in that bank prior to the time it was pledged to secure the original UB $800,000 Radcliffe loan. 32 Petitioner, as managing director of Multi-Credit, signed on behalf of Multi-Credit a security agreement dated Mar. 18, 1986, pledging the Multi-Credit $800,000 deposit in Standard Chartered Bank, Singapore, as security for the payment and performance of Radcliffe's obligations to Union Bank, irrespective of the manner in which or the time at which those obligations arose or would arise. - 45 UB $800,000 Radcliffe loan and the renewal of that loan, Union Bank maintained a lien on that deposit. The interest rate on the original UB $800,000 Radcliffe loan was set at Union Bank's LIBOR plus 1.5 percent or its reference rate plus 1 percent. That loan was to bear interest at Union Bank's LIBOR plus 1.5 percent if Radcliffe selected that rate in a manner essentially the same as that described above with respect to the UB $570,000 renewed loan first through third renewals. The period for which that rate was to be in effect could have been between one and six months. If Radcliffe did not select the LIBOR-based rate, the UB $800,000 Radcliffe loan was to bear interest at Union Bank's reference rate plus 1 percent. The promissory note documenting that loan provided that interest was payable by Radcliffe on the 10th of each month. The per- centage interest rate on the original UB $800,000 Radcliffe loan was initially 10.91 percent, and, as of October 15, 1985, it was 10.14 percent where it remained until that loan became due. Interest on that loan was paid on or about October 31, 1985. During the period in which the Multi-Credit $800,000 deposit was in Standard Chartered Bank HK, it was used to purchase fixed time deposits in that bank, as follows: - 46 Interest Rate on Fixed Time Deposits Term of Fixed Time Deposits June 27, 1985, until July 30, 1985 July 30, 1985, until Aug. 30, 1985 Aug. 30, 1985, until Oct. 2, 1985 Oct. 2, 1985, until Nov. 4, 1985 Nov. 4, 1985, until Dec. 4, 1985 Dec. 4, 1985, until Jan. 6, 1986 Jan. 6, 1986, until Feb. 6, 1986 Feb. 6, 1986, until Mar. 6, 1986 7.50 * 7.75 7.75 7.8125 8.00 7.875 7.75 * Interest rate not disclosed by the record. The interest on each of the foregoing fixed time deposits was payable on its maturity date. The interest payable on each of those deposits was (1) included in the amount used to purchase the succeeding fixed time deposit in the case of three such deposits, (2) was ultimately credited to an account in the name of Pioneer in the case of all but two such deposits, and (3) was disposed of in a manner not disclosed by the record in the case of those two deposits.33 The original UB $800,000 Radcliffe loan was renewed in 1986 (UB $800,000 Radcliffe renewed loan). That renewed loan was due on July 10, 1986, although it was not repaid until July 23, 1986. 33 The parties agree on brief that the interest payable in 1985 and 1986 on all the fixed time deposits purchased with the MultiCredit $800,000 deposit was deposited into an account in the name of Multi-Credit in Standard Chartered Bank HK. The parties' agreement is contrary to the record in the case of six of the fixed time deposits purchased with the Multi-Credit $800,000 deposit from June 1985 until February 1986. In the case of two of those deposits, the record does not disclose whether or not the parties' agreement is correct. - 47 The interest rate on the UB $800,000 Radcliffe renewed loan was set at Union Bank's LIBOR plus 1.5 percent and was payable by Radcliffe on the 10th of each month. The percentage interest rate on the UB $800,000 Radcliffe renewed loan was 10.14 percent. Interest on that loan was paid on or about June 30, 1986, and July 23, 1986. During the period in which the Multi-Credit $800,000 deposit was in Standard Chartered Bank, Singapore, it was used to purchase fixed time deposits in that bank, as follows: Term of Fixed Time Deposits Interest Rate on Fixed Time Deposits Mar. 6, 1986, until Apr. 7, 1986 Apr. 7, 1986, until May 8, 1986 May 8, 1986, until June 9, 1986 June 11, 1986,* until July 10, 1986 7.6875 7.7 to 6.7 6.6875 6.8750 *On June 10, 1986, the Multi-Credit $800,000 deposit was maintained in a call deposit account with respect to which $145.33 of interest was paid. The interest on each of the foregoing $800,000 fixed time deposits was payable on its maturity date. None of the interest payable on any of those fixed time deposits was included in the amount used to purchase the succeeding fixed time deposit. The interest payable on one of those fixed time deposits was credited to an account in the name of Pioneer. On July 23, 1986, approximately two weeks after it was due, the renewal of the UB $800,000 Radcliffe loan was repaid with (1) $200,000 that had been wired to Union Bank from Standard Chartered Bank HK on or about July 10, 1986, and (2) $600,000 - 48 that had been wired to Union Bank from Bangkok Bank Ltd.34 on or about July 23, 1986. When that loan was repaid, Union Bank released its lien on the Multi-Credit $800,000 deposit in Standard Chartered Bank, Singapore. (Hereinafter, the original UB $800,000 Radcliffe loan and the renewal of that loan will be referred to collectively as the UB $800,000 Radcliffe loan.) D. UB $1,300,000 Loan On March 20, 1984, Union Bank funded a $1,300,000 loan to Radcliffe (original UB $1,300,000 loan) that was due on July 16, 1984. To document the original UB $1,300,000 loan, petitioner and Ms. Gaw signed on behalf of Radcliffe a promissory note that was made payable to Union Bank and that was in the same amount as that loan. Pursuant to instructions, dated March 14, 1984, from petitioner and Ms. Gaw on behalf of Radcliffe, the proceeds of the original UB $1,300,000 loan were used to acquire from Union Bank on March 20, 1984, a certificate of deposit that was issued in the name of Pioneer (Pioneer $1,300,000 CD). Pursuant to a decision on March 14, 1984, of the board of directors of Pioneer, of which petitioner was managing director and chairman and Ms. Gaw was a director, the Pioneer $1,300,000 CD was pledged as security for the original UB $1,300,000 loan. That certificate of deposit was issued on March 20, 1984, the 34 The record is not clear as to whether those funds were wired from Bangkok Bank Ltd. headquarters, the Hong Kong branch of that bank, or another branch of that bank. - 49 same date on which the original UB $1,300,000 loan was funded, and matured on July 16, 1984, the same date on which that loan was due. Throughout the period March 20, 1984, until July 16, 1984, during which the Pioneer $1,300,000 CD served as security for the original UB $1,300,000 loan, Union Bank maintained a lien on the deposit represented by that certificate of deposit. By letter dated July 2, 1984 (July 2, 1984 Pioneer letter), petitioner and Ms. Gaw instructed Union Bank on behalf of Pioneer to transfer the deposit represented by the Pioneer $1,300,000 CD on the date on which that certificate of deposit matured (viz., July 16, 1984) into the name of Mandalay, a wholly owned subsidiary of Pioneer. That letter also instructed Union Bank that the $1,300,000 certificate of deposit in the name of Mandalay (original Mandalay $1,300,000 CD) was to be pledged to secure the original UB $1,300,000 loan. In accordance with that letter, and, pursuant to a decision on July 2, 1984, of the board of directors of Mandalay, of which petitioner was president and Ms. Gaw was executive director and secretary, the original Mandalay $1,300,000 CD and the renewals thereof were pledged as security for the renewals of the original UB $1,300,000 loan. Throughout the period July 16, 1984, until July 10, 1986, during which the original Mandalay $1,300,000 CD and the renewals of that certificate of deposit served as security for the renewals of that loan, Union Bank maintained a lien on the deposit represented thereby. - 50 The interest rate on the original UB $1,300,000 loan was set at 1.15 percent above the interest rate on the Pioneer $1,300,000 CD. The interest rate on the original UB $1,300,000 loan was 11.5 percent, and the interest payable on the Pioneer $1,300,000 CD was 10.35 percent. The promissory note documenting that loan provided that the interest on it was payable by Radcliffe monthly. Union Bank renewed the original UB $1,300,000 loan on three occasions for periods that ended on the following dates: 15, 1985, April 10, 1986, and July 10, 1986. April To document each of the first two renewals of the original UB $1,300,000 loan, petitioner and Ms. Gaw signed on behalf of Radcliffe a promissory note that was payable to Union Bank and that was in the same amount as that loan. The interest rates on all three renewals of the original UB $1,300,000 loan were set at 1.15 percent above the interest rate on the original Mandalay $1,300,000 CD and the renewals of that certificate of deposit (which ranged between 6.6 and 11.45 percent). Interest on all three renewals of the original UB $1,300,000 loan was payable by Radcliffe monthly. When the original Mandalay $1,300,000 CD matured on October 16, 1984,35 it was renewed 19 times for successive periods consisting of one three-month renewal and 18 one-month renewals. 35 Interest on the original Mandalay $1,300,000 CD was paid on Aug. 16, 1984, and Sept. 17, 1984. - 51 The 19th and final renewal of that certificate matured on July 10, 1986, the same date on which the final renewal of the original UB $1,300,000 loan was due. The dates on which the other two renewals of the original UB $1,300,000 loan were due coincided with the dates on which two of the one-month renewals of the original Mandalay $1,300,000 CD matured (viz., April 15, 1985, and April 10, 1986). Throughout the period during which the original Mandalay $1,300,000 CD and the renewals thereof were outstanding, the interest on those certificates was payable by Union Bank monthly. The interest on each of the one-month renewals of the original Mandalay $1,300,000 CD was payable by Union Bank on its maturity date, which occurred at approximately mid-month. In the July 2, 1984 Pioneer letter, petitioner and Ms. Gaw instructed Union Bank on behalf of Mandalay that the interest on the original Mandalay $1,300,000 CD and the renewals thereof was to be credited monthly to an account maintained in the name of Pioneer at Union Bank. On July 10, 1986, the final renewal of the original UB $1,300,000 loan was repaid with the proceeds represented by the final renewal of the original Mandalay $1,300,000 CD. (Herein- after, the original UB $1,300,000 loan and the renewals of that loan will be referred to collectively as the UB $1,300,000 loan, and the original Mandalay $1,300,000 CD and the renewals of that certificate of deposit will be referred to collectively as the Mandalay $1,300,000 CD.) - 52 E. UB $1,830,000 Loan In August 1984, Union Bank funded a $1,830,000 loan to BOT (original UB $1,830,000 loan) that was due on July 15, 1985. Pursuant to instructions of petitioner on behalf of BOT, the proceeds of that loan were used to acquire from Union Bank a $1,830,000 certificate of deposit that was issued in the name of Pempire (original Pempire $1,830,000 CD). To document the origi- nal UB $1,830,000 loan, petitioner signed on behalf of BOT a promissory note that was made payable to Union Bank and that was in the same amount as that loan. Pursuant to a decision on July 18, 1984, of the board of directors of Pempire, of which petitioner was chairman and president, the original Pempire $1,830,000 CD and the renewals thereof were pledged as security for the original UB $1,830,000 loan and the renewals of that loan. That certificate of deposit was issued on August 13, 1984, and matured on July 15, 1985, the same date on which the original UB $1,830,000 loan was due. Through- out the period August 1984 until July 10, 1986, during which the original Pempire $1,830,000 CD and the renewals thereof served as security for the original UB $1,830,000 loan and the renewals of that loan, Union Bank maintained a lien on the deposit represented thereby. The interest rate on the original UB $1,830,000 loan was set at 1.15 percent above the interest rate on the original Pempire $1,830,000 CD. The interest rate on the original UB $1,830,000 - 53 loan was 12.95 percent, and the interest rate on the original Pempire $1,830,000 CD was 11.8 percent. The promissory note documenting the original UB $1,830,000 loan provided that the interest on that loan was payable by BOT semiannually. Union Bank renewed the original UB $1,830,000 loan on three occasions for periods that ended on the following dates: October 10, 1985 (UB $1,830,000 loan first renewal), April 10, 1986 (UB $1,830,000 loan second renewal), and July 10, 1986 (UB $1,830,000 loan final renewal). To document each of the first two renewals of the original UB $1,830,000 loan, petitioner signed on behalf of BOT a promissory note that was made payable to Union Bank and that was in the same amount as that loan. The interest rate on all three renewals of the original UB $1,830,000 loan was set at 1.15 percent above the interest rate on the renewals of the original Pempire $1,830,000 CD (which ranged between 6.6 and 7.9 percent). The interest on the UB $1,830,000 loan first renewal was payable by BOT at that loan's maturity. The interest on the UB $1,830,000 loan second and final renewals was payable by BOT monthly. When the original Pempire $1,830,000 CD matured on July 15, 1985, it was renewed 10 times for successive periods consisting of three one-month renewals, one three-month renewal, and six one-month renewals. The 10th and final renewal of that certifi- cate matured on July 10, 1986, the same date on which the final renewal of the original UB $1,830,000 loan was due. The dates on - 54 which the other two renewals of the original UB $1,830,000 loan were due either coincided with or were close to the dates on which two of the one-month renewals of the original Pempire $1,830,000 CD matured (viz., October 10, 1985, and April 10, 1986).36 Union Bank made six interest payments on or shortly after the maturity dates of certain of the renewals of the original Pempire $1,830,000 CD. On July 10, 1986, Union Bank repaid the UB $1,830,000 loan final renewal with the proceeds represented by the final renewal of the original Pempire $1,830,000 CD. (Hereinafter, the origi- nal UB $1,830,000 loan and the renewals of that loan will be referred to collectively as the UB $1,830,000 loan, and the original Pempire $1,830,000 CD and the renewals of that certifi-cate of deposit will be referred to collectively as the Pempire $1,830,000 CD.) F. Facts Pertaining to All the Transactions at Issue Involving Union Bank At least as early as August 1984, Union Bank became concerned that the cash deposits that had been pledged by the foreign corporations in question as security for the loans it had funded to Radcliffe and to BOT that are at issue herein might 36 Six payments of interest were made at or shortly after the maturity dates of certain renewals of the original Pempire $1,830,000 CD. Three payments of interest were credited to Pempire's account with Union Bank, and two payments of interest were credited to Pempire's account without indicating the bank in which that account was maintained. - 55 constitute fraudulent conveyances under California law, in which event Union Bank believed that it might be deprived of an enforceable security interest in those deposits. In order to address that concern, Union Bank sought from petitioner, inter alia, financial information relating to the foreign corporations that pledged cash collateral for those loans and statements that those corporations owned Radcliffe and/or BOT. Union Bank did not receive the information it requested from petitioner. Consequently, it requested its affiliate Standard Chartered Bank HK to guarantee its loans to Radcliffe and to BOT that are at issue herein. That guarantee was to be secured by the cash deposits that had been pledged as security for those loans. Despite Union Bank's concerns about possible fraudulent conveyances under California law and although Standard Chartered Bank HK did not provide the guarantee requested by Union Bank, Union Bank renewed on one or more occasions the loans it had funded to Radcliffe and to BOT as they became due during the years at issue. In February 1986, petitioner requested Union Bank to consider making a new loan to Radcliffe and/or BOT in the amount of $8,400,000, an amount that was approximately equal to the then outstanding balances of the loans at issue that had been funded by Bangkok Bank LA branch and by Union Bank to Radcliffe and BOT. - 56 That new loan was to be secured by the buildings owned by NMSC and 300 Montgomery Associates. A letter dated March 3, 1986 (March 3, 1986 letter) from Henry Yung, an officer of Union Bank, to Patrick Kwok of Standard Chartered Bank HK, an affiliate of Union Bank,37 indicated that, when Union Bank's weighted average interest rate on the loans it had outstanding to Radcliffe and to BOT (viz., the UB $570,000 renewed loan, the UB $325,000 loan, the UB $800,000 Radcliffe loan, the UB $1,300,000 loan, and the UB $1,830,000 loan) was compared to its weighted average cost of funds and overhead costs, it was losing money on those loans. The March 3, 1986 letter further indicated that Union Bank was losing money on those loans even when earnings from deposits that were not connected with such loans were taken into account. Mr. Yung also stated in that letter that Union Bank nonetheless was willing to renew the loans it had funded to Radcliffe and to BOT on terms that would allow it to break even on them. 37 In this regard, the The Mar. 3, 1986 letter was prompted by petitioner's request that the loans that Union Bank had funded to Radcliffe and to BOT and that are at issue herein be renewed at interest rates that were to be set at 1 percentage point in excess of the interest rates on the various deposits that secured those loans. It appears to us that, in early 1986, petitioner was pursuing at least two alternative possible courses of action for restructuring the loans at issue involving Union Bank: (1) replacing them (along with the Bangkok Bank LA branch loans) with a new loan secured by the buildings of NMSC and 300 Montgomery Associates (see discussion above) and (2) altering the manner in which the interest rates on the then outstanding Union Bank loans were to be determined. - 57 March 3, 1986 letter indicated that Union Bank was "pleased to have the opportunity to accommodate this valued Group customer [petitioner] and will entertain all reasonable requests." The loans to Radcliffe and to BOT by Union Bank that are at issue in these cases did not provide that bank with an opportunity to make a profit. IV. Transaction Involving Horbury During relevant periods, Horbury Holdings B.V. (Horbury), which was incorporated in the Netherlands in 1982, was a subsidiary of Asselwell Mondial N.V. (Asselwell), and Asselwell, which was incorporated in the Netherlands Antilles, was a subsidiary of a foreign subsidiary of Pioneer. BOT claimed a deduction of $151,722 for interest paid to Horbury in its 1984 Federal income tax return. V. Income or Loss Reported by Radcliffe and by BOT for the Years at Issue In their Federal income tax returns (income tax returns) for the years at issue, Radcliffe and BOT reported the following amounts of taxable income or loss: Year Radcliffe BOT 1984 1985 1986 ($809,615) (835,080) (894,322) $93,026 (168,669) (310,024) The foregoing results reported by Radcliffe and by BOT were generated in part by deductions for interest paid that they claimed in their respective income tax returns for the years at - 58 issue. Specifically, in its income tax returns for the years at issue, Radcliffe claimed the following deductions for interest paid to Bangkok Bank LA branch: Year Amount 1984 1985 1986 $73,791 194,289 211,719 In its income tax returns for the years at issue, Radcliffe claimed the following deductions for interest paid to Union Bank: Year Amount 1984 1985 1986 $144,427 220,171 120,008 In its income tax returns for the years at issue, BOT claimed the following deductions for interest paid to Union Bank: Year Amount 1984 1985 1986 $167,448 233,853 119,260 OPINION In determining that petitioner is liable for the deficiencies in, additions to, and penalties on withholding tax that she determined with respect to Radcliffe and BOT, respondent relies on the transferee liability provisions of section 6901. Peti- tioner does not dispute that he would be liable as a transferee of each of those taxpayers under section 6901 for those deficiencies in, additions to, and penalties on tax in the event the - 59 Court were to sustain respondent's determinations with respect to Radcliffe and BOT.38 Consequently, in the event we were to sustain respondent's determinations with respect to Radcliffe and BOT, respondent would have satisfied her burden under section 6902(a) of proving that petitioner is liable as a transferee of each of those corporations. The principal dispute in these cases is whether the determinations with respect to Radcliffe and BOT should be sustained. Petitioner bears the burden of demonstrating that those determinations are erroneous. See sec. 6902(a); Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933); Zmuda v. Commissioner, 731 F.2d 1417, 1422 (9th Cir. 1984), affg. 79 T.C. 714 (1982). Before turning to the various issues presented in these cases, we note that we have given due consideration to all of the parties' arguments and contentions with respect to those issues, even though we do not attempt to address each of them herein. I. Evidentiary Matters Petitioner has attempted to satisfy his burden of proof through testimonial and documentary evidence. principal witness on his behalf. 38 Petitioner was the We found him to be glib and at Radcliffe and BOT each distributed property with a net value of not less than $1,000,000 to petitioner as sole shareholder. The net value of the property so distributed by Radcliffe and by BOT exceeds the respective amounts of the deficiencies, additions to tax, and penalties that respondent determined against petitioner as a transferee of Radcliffe and of BOT. - 60 times vague, evasive, inconsistent, and conclusory in his testimony. In addition, based on our observation of petitioner's demeanor at trial, we generally did not find him to be credible. In these circumstances, we are not required to, and we generally do not, accept petitioner's self-serving and uncorroborated See Geiger v. Commissioner, 440 F.2d 688, 689-690 testimony. (9th Cir. 1971), affg. per curiam T.C. Memo. 1969-159; Wood v. Commissioner, 338 F.2d 602, 605 (9th Cir. 1964), affg. 41 T.C. 593 (1964); Tokarski v. Commissioner, 87 T.C. 74, 77 (1986). We generally found the other witnesses who testified to be credible. A. The Adverse Inference Rule-Mme. Koo's Failure To Testify Mme. Koo, petitioner's mother-in-law, did not testify. Petitioner claims on brief that she owned certain of the corporations (viz., Intercontinental, Double Wealth, Traveluck, Forward, and Pioneer) that pledged cash deposits as security for a number of the loans at issue.39 Citing Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158 (1946), affd. 162 F.2d 513 (10th Cir. 1947), respondent urges us to apply the so-called adverse inference rule and to infer from petitioner's failure to call Mme. Koo that her testimony would have been unfavorable to petitioner. 39 Relying principally on Wynn v. United States, 397 Petitioner also claims that during the years at issue Mme. Koo and/or her family owned Vidda, a corporation to whose account in Standard Chartered Bank HK certain interest due on certain of the cash deposits that secured BB Loan Nos. 2 and 3 was credited. - 61 F.2d 621, 625-626 (D.C. Cir. 1967), petitioner contends that since Mme. Koo, an alleged resident of Hong Kong, could not have been subpoenaed to appear at the trial of these cases, an adverse inference should not be drawn from her failure to testify. We disagree with petitioner's reading of the Wynn case.40 The burden of proof is on petitioner with respect to respondent's determinations against Radcliffe and BOT, and we cannot assume that missing evidence would be favorable to him. See Kamborian v. Commissioner, 56 T.C. 847, 869 (1971), affd. 469 40 We also disagree with petitioner's reading of the other authorities to which he cites, viz., Burgess v. United States, 440 F.2d 226, 235 (D.C. Cir. 1970) (Robinson, J., concurring); Savard v. Marine Contracting Inc., 471 F.2d 536, 542 (2d Cir. 1972); In re Stader, 90 Bankr. 29, 32 n.8 (Bankr. D. Conn. 1988); and 2 Wigmore on Evidence, sec. 286, at 200 (Chadbourn rev. 1979). Judge Robinson began his concurring opinion in the Burgess case with a discussion of the adverse inference rule and his assumption that the missing witness in that case was amenable to subpoena. However, that Judge Robinson made that assumption does not mean to us that it is his view or, more importantly, the view of the U.S. Court of Appeals for the District of Columbia Circuit that a witness must in all events be amenable to subpoena before being considered within a party's power to produce for purposes of the adverse inference rule. Burgess v. United States, supra at 235. Both the Savard and Stader cases indicate that evidence must be within a party's control before a negative inference will be drawn from that party's failure to produce that evidence. However, as will be discussed below, for purposes of the adverse inference rule, evidence may be within a party's control even if it is not subject to production by subpoena. See United States v. Martin, 696 F.2d 49, 52 (6th Cir. 1983). Similarly, the statement in 2 Wigmore on Evidence, sec. 286, at 200, relied on by petitioner (viz., the "lack of power [to produce] may be due to the person's absence from the jurisdiction") does not indicate to us that such an absence necessarily means that for purposes of the adverse inference rule a party is considered to be powerless to produce the witness. - 62 F.2d 219 (1st Cir. 1972); Pollack v. Commissioner, 47 T.C. 92, 108 (1966), affd. 392 F.2d 409 (5th Cir. 1968). Indeed, the usual inference is that such evidence would be unfavorable. See Pollack v. Commissioner, supra; see also 2 Wigmore on Evidence, sec. 285(1), at 192 (Chadbourn rev. 1979). Where a party fails to call a witness peculiarly within the power of that party to produce and the testimony of that witness would elucidate the matters at issue, it generally is permissible under the adverse inference rule to infer that the witness' testimony would have been unfavorable. See Graves v. United States, 150 U.S. 118, 120-121 (1893); United States v. Rollins, 862 F.2d 1282, 12971298 (7th Cir. 1988); see also 2 McCormick on Evidence, sec. 264, at 185 (4th ed. 1992). In Wynn v. United States, supra, the U.S. Court of Appeals for the District of Columbia Circuit, to which an appeal in these cases would normally lie, considered on its own initiative the question of whether an adverse inference could be drawn against a criminal defendant for failing to present certain witnesses he claimed would support his alibi defense. The Court of Appeals stated that the record did not disclose whether any of those uncalled witnesses was within the power, much less peculiarly within the power, of that defendant to produce. In a footnote, the court gave what it described as a "partial enumeration" of the circumstances relevant to resolving that question that were - 63 not disclosed by the record in that case, including the "physical amenability to subpoena" of those witnesses. Id. at 625 & n.23. Thus, Wynn merely indicates that physical amenability to subpoena is simply one of a number of different factors to be considered in determining whether an uncalled witness is within a party's power to produce for purposes of the adverse inference rule. It does not stand for the proposition that such a witness is always beyond the power of a party to produce for purposes of that rule when that witness is not subject to subpoena. Petitioner has not cited, and our research has not disclosed, any case decided by the Court of Appeals for the District of Columbia Circuit involving the adverse inference rule where that court has considered a situation in which an uncalled witness was beyond the subpoena power of the court.41 41 However, We note that in Harry v. Safeway Stores, Inc., 215 F. Supp. 324, 325-327 (D.D.C. 1963), the U.S. District Court for the District of Columbia, the court in accordance with whose rules of evidence we conduct our trials, Rule 143(a), found that a jury was permitted to draw a negative inference from a defendant's failure to call a former employee who was apparently living in Florida at the time of trial. That court found that the jury could infer that that witness was peculiarly available to the defendant because of the witness' past employment relationship with the defendant, the defendant's apparent knowledge of where the witness could be reached, and the lack of a satisfactory explanation for his absence. Id. We note that, at the time the Harry case was decided, Fed. R. Civ. P. 45(e) provided that a subpoena for attendance at trial generally could be served within the district where trial was held or within 100 miles of that place. Fed. R. Civ. P. 45(e), 28 U.S.C. app. at 5167 (1958). Accordingly, it seems that the missing witness in Harry v. Safeway Stores, Inc., supra, was beyond the subpoena power of the (continued...) - 64 other U.S. Courts of Appeals have addressed situations where uncalled witnesses were beyond their subpoena power and have concluded that an adverse inference may be drawn against a party from the failure to present a witness even where that witness may not be subpoenaed by that party. See United States v. Martin, 696 F.2d 49, 52 (6th Cir. 1983); United States v. Lehmann, 613 F.2d 130, 135-136 (5th Cir. 1980); see also A.B. Dick Co. v. Burroughs Corp., 798 F.2d 1392, 1400 & n.9 (Fed. Cir. 1986). For example, in Martin, the Court of Appeals for the Sixth Circuit concluded that the friendship with one of the parties of certain uncalled witnesses who lived in Canada rendered those witnesses within the power of that party to produce, notwithstanding that those witnesses were beyond the subpoena power of the Federal courts.42 United States v. Martin, supra. We have found based on the record in these cases that petitioner and Mme. Koo had close and amicable business and 41 (...continued) District Court for the District of Columbia. 42 For purposes of applying the adverse inference rule, other courts have concluded that the question whether a witness is within the power of a party to produce is generally to be determined by taking account of various factors, including the witness' accessibility to the service of a subpoena upon him and the relationship of the witness to that party. See United States v. Johnson, 467 F.2d 804, 808-809 (1st Cir. 1972); McClanahan v. United States, 230 F.2d 919, 926 (5th Cir. 1956). - 65 family relationships prior to and during the years at issue.43 Mme. Koo is, and was during and preceding the years at issue, petitioner's mother-in-law. expected to favor him. Thus, she would ordinarily be In fact, the record discloses that she did favor him with respect to various business transactions.44 The failure of a party to call as a witness a relative who would ordinarily be expected to favor that party suggests that that relative's testimony would be unfavorable. See Steiner v. Commissioner, 350 F.2d 217, 222-223 (7th Cir. 1965), affg. T.C. Memo. 1963-128; Stoumen v. Commissioner, 208 F.2d 903, 907 (3d Cir. 1953), affg. a Memorandum Opinion of this Court dated Mar. 13, 1953. On the present record, we find that Mme. Koo was within petitioner's power to produce for purposes of the adverse in- 43 Petitioner's relationships with his mother-in-law Mme. Koo contrast sharply with his relationships with his mother and siblings, which both he and his brother, Henry Gaw, testified were hostile. Union Bank records also indicate that that bank understood that there was disunity among members of S.C. Gaw's family following his death and that each member of that family was responsible for his or her own activities. 44 By way of illustration, petitioner testified that he became managing director of Pioneer in 1973 at Mme. Koo's behest and that he was able to borrow from, and give guarantees for more than what he was worth to, banks in Hong Kong because those banks knew that Mme. Koo would honor his obligations if the need arose. Documentary evidence in the record shows Mme. Koo's involvement in transactions with respect to the pledges of cash deposits by Double Wealth and Forward for certain of the loans at issue, e.g., her signature on documents of Double Wealth and Forward connected with the pledge of those corporations' deposits as security for those loans. - 66 ference rule, notwithstanding her alleged residence in Hong Kong.45 We turn now to the requirement of the adverse inference rule that an uncalled witness not only must be within a party's power to produce but also must be "peculiarly" within that party's power to produce before such an inference may be drawn against that party. See United States v. Rollins, 862 F.2d at 1297-1298. If a witness is "equally available" to both parties and neither calls that witness at trial, no adverse inference is warranted. See Kean v. Commissioner, 469 F.2d 1183, 1188 (9th Cir. 1972), affg. in part, revg. in part 51 T.C. 337 (1968). For this purpose, an uncalled witness is not equally available to the party requesting that the inference be drawn against the other party, and thus is peculiarly within the other party's power to produce, where that witness' relationship to that other party is such that the witness is likely to favor that other party. See id.; McClanahan v. United States, 230 F.2d 919, 925 (5th Cir. 1956). 45 In addition to petitioner's close and amicable business and family relationships with Mme. Koo, it is noteworthy that although petitioner did not attempt to depose Mme. Koo prior to trial, on May 10, 1994, well after these cases were submitted and after the parties had filed their briefs, petitioner (1) filed a motion to reopen the record that the Court denied by order dated May 26, 1994, and (2) lodged an application to take the deposition of Mme. Koo in Hong Kong. Thus, Mme. Koo was willing to be deposed for purposes of these cases after the trial herein and after respondent's opening brief advancing the adverse inference rule with respect to Mme. Koo had been served on petitioner. - 67 On the instant record, we find that Mme. Koo's business and family relationships with petitioner are such that she would likely favor petitioner, and therefore she was not equally available to respondent for purposes of the adverse inference rule. We further find that Mme. Koo was peculiarly within petitioner's power to produce for purposes of that rule. Before applying the adverse inference rule, another requirement must be satisfied, that is to say, the testimony of the missing witness must elucidate the matters at issue, and not be merely cumulative. See United States v. Rollins, supra; 2 McCormick on Evidence, sec. 264, at 185. On the instant record, we find that Mme. Koo's testimony would have elucidated the transactions at issue and would not have been merely cumulative. During the years at issue, petitioner was managing director and chairman of Pioneer and a director of Forward. During 1985, he was a director of Traveluck and a director and officer of Double Wealth. While petitioner might arguably have been in as good a position as Mme. Koo to know of certain circumstances relevant to these cases, there are disputed matters, such as the ownership of Pioneer and the other foreign corporations petitioner claims Mme. Koo owned, which her testimony would have elucidated. Mme. Koo also would have been in a better position than petitioner to testify concerning the intentions and actions of the corporations that petitioner claims she owned with respect to the loan trans- - 68 actions at issue, and she may have been able to supply information concerning matters as to which petitioner claimed ignorance, such as the source of the deposits made by Forward that were used as collateral. We also note that the failure of a party to call available witnesses to corroborate that party's testimony can justify drawing an adverse inference from their absence. See Frierdich v. Commissioner, 925 F.2d 180, 185 (7th Cir. 1991), affg. T.C. Memo. 1989-393; see also Stoumen v. Commissioner, supra. Peti- tioner's testimony was at times vague, evasive, and conclusory, his credibility was challenged by respondent on cross-examination, and, based on our observation of his demeanor at trial, we generally did not find him to be credible. The testimony of a corroborating witness, such as Mme. Koo, would not have been merely cumulative. In order to avoid having an adverse inference drawn from the failure to present a witness, a party may attempt, as petitioner does here, to explain the reason that witness was not called. See Case v. New York Central R.R., 329 F.2d 936, 937-938 (2d Cir. 1964); Schumacher v. United States, 216 F.2d 780, 787-788 (8th Cir. 1954). If the failure to present a witness is not satis- factorily explained, we may draw an adverse inference from that witness' absence. See Pollack v. Commissioner, 47 T.C. at 108. - 69 On brief, petitioner alleges, and asks us to infer from the record, that Mme. Koo's age, the length of the journey from Hong Kong, where she allegedly resided, to San Francisco, where, at the request of petitioner, trial was held, and the scheduling of the trial herein prevented her attendance at trial.46 When the 46 We note first that petitioner could have requested, but did not request, that trial be held in Hawaii, which might have ameliorated the alleged difficulty of Mme. Koo's traveling to San Francisco where the trial was held. We also note that petitioner's contentions appear to be inconsistent. If Mme. Koo's inability to attend trial was due to her age and the distance that she may have had to travel to San Francisco, those circumstances could not have been ameliorated by the scheduling of the trial. Petitioner also suggests on brief that Mme. Koo made travel plans in reliance on the Court's indication in a telephonic conference call with counsel for the parties prior to the start of the trial session on which these cases were calendared that it would try to schedule the trial of these cases in the second week of its session. Petitioner, in his application to take Mme. Koo's deposition that was lodged with the Court on May 10, 1994, well after the record in these cases was closed, further alleges that Mme. Koo planned to travel to the United States on July 15, 1994. Petitioner's suggestion that Mme. Koo made travel plans in reliance on the Court's comment in a telephonic conference with counsel for the parties and his representation in his application to take her deposition well after trial indicate that Mme. Koo was able to travel, which undercuts petitioner's contention that Mme. Koo did not testify because of the difficulty of traveling from Hong Kong to San Francisco. Petitioner's contention that Mme. Koo's failure to testify was attributable to the scheduling of the trial in these cases is contrary to the record herein. While the Court did indicate during a telephonic conference with counsel for the parties prior to the calendar call that it would attempt to schedule the trial in these cases during the second week of its trial session in San Francisco, it emphasized that it could not assure petitioner that it could accommodate him by scheduling the trial during that (continued...) - 70 Court asked petitioner at the call of these cases from the calendar and before it had scheduled the time and date of the trial herein to name the witnesses he intended to call at trial, he did not include Mme. Koo among those witnesses and did not explain that omission. Nor did petitioner ask the Court at that time toconsider Mme. Koo's availability to testify in scheduling the trial, object to the trial date set by the Court on the grounds that Mme. Koo was not available at that time, or offer an explanation at trial for her absence. Petitioner's trial memorandum that was submitted approximately two weeks before the call of these cases from the calendar simply stated that Mme. Koo's ability to testify was "uncertain" due to her age and residence in Hong Kong, not that those circumstances prevented her from testi46 (...continued) week. The Court also indicated to the parties at the call of these cases from the calendar and before scheduling the trial that it might not be able to accommodate their scheduling preferences. When the Court asked the parties at the call of these cases from the calendar to estimate trial time and name the witnesses they intended to call at trial, petitioner's counsel did not name Mme. Koo as one of the witnesses he would call at trial and did not ask the Court to schedule the trial to take place at a time when she would be available. The only ground on which petitioner's counsel sought at that time to delay the commencement of the trial was petitioner's absence from the calendar call and his expected arrival in San Francisco the following night. The Court scheduled trial to begin on the first day of its trial session in San Francisco because a witness named Mr. Catterton, who was subpoenaed by petitioner only three business days prior to the call of these cases from the calendar, was available to testify only on that day and would not have been available again until after the Court ended its trial session in San Francisco. - 71 fying. We conclude that Mme. Koo did not testify at trial be- cause petitioner did not intend to call Mme. Koo as a witness, rather than for any of the reasons advanced by petitioner on brief. Based on our review of the entire record in these cases, we will draw an adverse inference from petitioner's failure to call Mme. Koo as a witness.47 B. Evidentiary Objections We now deal with the admissibility of certain exhibits to which the parties stipulated, but as to which one of the parties preserved an evidentiary objection in their stipulations.48 At trial, we admitted those exhibits into evidence conditionally, subject to our ruling on their admissibility. 1. Petitioner's Income Tax Returns Petitioner objected in the stipulations on grounds of relevance to the admission of his individual Federal income tax 47 Even if we were not to draw such an adverse inference, our findings and holdings in these cases would not change. 48 The parties' stipulation of facts was received by the Court at the call of these cases from the calendar on Oct. 25, 1993, and was filed with the Court at the beginning of the trial later that day. The Court did not rule on the evidentiary objections stated in the stipulations because it did not have sufficient time prior to trial to consider them or the parties' voluminous stipulations and the exhibits attached thereto. That was because of the time constraints placed on the Court attributable to other Court business that had previously been scheduled to take place on Oct. 25, 1993, and the need to schedule the trial in these cases on that same day in order to accommodate a witness subpoenaed by petitioner only three business days prior to the first day of the trial session, see supra note 46. - 72 returns for 1984, 1985, and 1986. On brief, he does not restate that objection or advance any argument relating to it. We therefore presume that petitioner has abandoned his evidentiary objection to the admission into evidence of his individual Federal income tax returns for 1984, 1985, and 1986. v. Commissioner, 91 T.C. 524, 566 n.19 (1988). See Rybak Consequently, we unconditionally admit those returns into evidence and make them a part of the record in these cases. 2. Certain Instruments of Transfer and Stock Certificates Respondent objected in the stipulations on grounds of hearsay to the admission of certain instruments of transfer with respect to Traveluck, Double Wealth, and Forward, and certain stock certificates with respect to Traveluck and Forward. On brief, respondent restates those objections. To counter respondent's hearsay objections, petitioner appears to argue that the documents in question are not excludible hearsay under rule 802 of the Federal Rules of Evidence because he is not offering them for the truth of the matters asserted therein, but to show that the persons signing those documents believed that Mme. Koo was a shareholder of those corporations. Rule 801(c) of the Federal Rules of Evidence defines hearsay as "a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove - 73 the truth of the matter asserted." Rule 801(a) of the Federal Rules of Evidence defines a "statement" as "(1) an oral or written assertion or (2) nonverbal conduct of a person, if it is intended by the person as an assertion." The notes of the Advisory Committee on the Federal Rules of Evidence discuss the effect of the foregoing definitions as follows: The effect of the definition of "statement" is to exclude from the operation of the hearsay rule all evidence of conduct, verbal or nonverbal, not intended as an assertion. The key to the definition is that nothing is an assertion unless intended to be one. * * * nonverbal conduct * * * [not intended as an assertion] may be offered as evidence that the person acted as he did because of his belief in the existence of the condition sought to be proved, from which belief the existence of the condition may be inferred. * * * [Notes of the Advisory Committee on the Federal Rules of Evidence, 28 U.S.C. app. at 722 (1988).] Assertions falling within the hearsay rule may be express or implied. See United States v. Reynolds, 715 F.2d 99, 103 (3d Cir. 1983). The Court of Appeals for the District of Columbia Circuit has concluded that, whether an assertion is express or implied, the critical distinction for purposes of deciding whether conduct constitutes a statement as defined in rule 801(a) of the Federal Rules of Evidence is whether that conduct constitutes an intentional or unintentional message with respect to the matter sought to be proven. See United States v. Long, 905 F.2d 1572, 1580 (D.C. Cir. 1990). Where the conduct in question constitutes an unintentional message, that conduct is not hearsay. See id. - 74 The instrument of transfer with respect to Traveluck, dated January 3, 1985, stated, inter alia, that Ms. Gaw was transferring the one share of the stock of Traveluck held in her name to Mme. Koo, subject to the same conditions under which Ms. Gaw held that share. There are two instruments of transfer with respect to Double Wealth. In one such instrument, entitled "Transfer of Subscription" and dated January 8, 1985, S.B. Goweh, inter alia, (1) stated that he was transferring to Mme. Koo all his interest as a subscriber to the stock of Double Wealth to the extent of one share of the common stock of that corporation; (2) requested Double Wealth to issue a certificate in her name for that one share; and (3) directed Double Wealth to register that transfer on its books, effective January 8, 1985. A second instrument of transfer with respect to Double Wealth, dated June 5, 1988, stated, inter alia, that Mme. Koo was transferring the one share of the stock of that corporation held in her name to Pioneer, subject to the same conditions under which Mme. Koo held that share. In the instrument of transfer with respect to Forward, entitled "Transfer of Subscription" and dated December 4, 1980, S.B. Goweh, inter alia, (1) stated that he was transferring to Mme. Koo all his interest as a subscriber to the stock of Forward to the extent of one share of the common stock of that corporation; (2) requested Forward to issue a certificate in her name for that one share; and (3) directed Forward to register that transfer on its books, effective December 4, 1980. - 75 Based on the assertions in, and the nature of, the instruments of transfer with respect to Traveluck, Double Wealth, and Forward, we conclude that the persons signing those documents intended to assert expressly that one share of the stock of each of those corporations was, or was to be, held in the name of Mme. Koo.49 Accordingly, those documents fall within the definition of hearsay in rule 801(c) of the Federal Rules of Evidence, and, pursuant to rule 802 of those rules, we will not admit them into evidence. The respective stock certificates of Traveluck and of Forward to which respondent objected (1) certified that Mme. Koo was the owner of one share of the stock of each of those corporations and (2) further stated, inter alia, that each corporation had caused its respective officers to sign the respective certificates in witness of that certification. Obviously, by having signed the respective stock certificates as officers of Traveluck and Forward, the persons signing those certificates intended to assert that Mme. Koo owned one share of the stock of Traveluck and Forward, respectively. Accordingly, those stock certificates fall within the definition of hearsay in rule 801(c) of the Federal Rules of Evidence, and, pursuant to rule 802 of those 49 We note that none of those instruments of transfer establishes whether or not Mme. Koo was the beneficial owner of the one share of stock of the corporation to which each relates or was holding such stock for some other person. - 76 rules, we will not admit them into evidence.50 3. Horbury Financial Statement Respondent objected in the stipulations on grounds of hearsay to the admission of Horbury's balance sheet and income statement for the year ended March 31, 1986. On brief, respondent does not restate that objection or advance any argument relating to it. We therefore presume that respondent has abandoned her evidentiary objection to the admission into evidence of Horbury's 50 Even if we were to conclude that the documents in question were not hearsay as petitioner contends, we would not necessarily admit them into evidence. This is because those documents appear to be merely cumulative of evidence already in the record. See Fed. R. Evid. 403. The parties stipulated that (1) one share of the stock of Traveluck was held in the name of Mme. Koo at all relevant periods after Jan. 3, 1985; (2) one share of the stock of Double Wealth was held in the name of Mme. Koo from Jan. 8, 1985, through the remainder of the years at issue; and (3) one share of the stock of Forward was issued in the name of Mme. Koo in December 1980. The beliefs of the persons signing the instruments of transfer with respect to Traveluck, Double Wealth, and Forward and the stock certificates of Traveluck and Forward appear to add nothing to, and seem to be merely cumulative of, those stipulations. Moreover, even if we were to admit the documents in question into evidence, they would not necessarily establish who owned a majority of the stock of, or who controlled, Traveluck, Double Wealth, or Forward; nor would they change our resolution of the issues in these cases. Each instrument of transfer purports to effect the transfer to or by, or the issuance to, Mme. Koo of only one share of stock in each of those corporations, and the respective stock certificates purport to certify ownership by Mme. Koo of only one share of stock in Traveluck and in Forward. No instrument of transfer indicated the number of issued and outstanding shares of stock of the corporation to which it relates. Although each stock certificate indicated the number of authorized shares of stock of the corporation to which it relates, there is no evidence in the record concerning the total number of authorized shares of stock of each corporation that was issued and outstanding during the years at issue. - 77 balance sheet and income statement for the year ended March 31, 1986. See Rybak v. Commissioner, 91 T.C. at 566 n.19. Conse- quently, we unconditionally admit that document into evidence and make it a part of the record in these cases. 4. Annual Reports of Pioneer and Financial Statements of Multi-Credit Respondent objected in the stipulations on grounds of hearsay to the admission of certain documents that purport to be Pioneer's annual reports for the years ended March 31, 1983, March 31, 1984, March 31, 1985,51 and March 31, 1986, and MultiCredit's financial statements for the years ended March 31, 1986, and March 31, 1987. On brief, respondent does not restate those objections or advance any argument relating to them. We there- fore presume that respondent has abandoned her evidentiary objections to the admis [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3A72d6fee022ce485c. Public record. Not legal advice.