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that the Supreme Court placed any significance on the ratio of
debt to equity. Indeed, from the facts presented in Moline
Properties, one would suspect that the creditors required the
transfer of real estate to the newly formed corporation, because
the individual debtor/stockholder had insufficient equity to
satisfy the creditors that the debts would be repaid.
Moline Properties, Inc. v. Commissioner, supra, stands for
the general proposition that a choice to do business in corporate
form will result in taxing business profits at the corporate
level. Neither party has directed our attention to precedent
that conditions this proposition on a ratio of debt to equity.
This does not mean that the relationship of debt to equity is
necessarily irrelevant in cases where there is a challenge to a
corporation's role. But if the relationship of debt to equity is
to be a significant factor for tax purposes, it seems to us that
it must also have economic significance to the transaction being
challenged.
In the instant case, if petitioner had invested sufficient
equity capital in Finance to bring the debt-to-equity ratio to 5
to 1, respondent would have conceded. Petitioner could have
achieved this debt-to-equity ratio by contributing an additional
$14 million to Finance.8 But since Finance's only business
8As previously noted, petitioner argues that it did achieve
a 5-to-1 debt-to-equity ratio when it assigned at least $28
million of accounts receivable to Finance.
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