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Bona fide debts generally arise from valid debtor-creditor
relationships reflecting enforceable and unconditional
obligations to repay fixed sums of money. Sec. 1.166-1(c),
Income Tax Regs. For purposes of section 166, contributions to
capital do not constitute bona fide debts. Kean v. Commissioner,
91 T.C. 575, 594 (1988).
The question of whether any of the payments or transfers of
funds to or on behalf of closely held corporations constitute
debt or equity must be considered on the basis of all the
relevant facts and circumstances. Dixie Dairies Corp. v.
Commissioner, 74 T.C. 476, 493 (1980). Taxpayers generally bear
the burden of proving that the transfers constituted loans and
not equity investments. Rule 142(a).
Courts look to the following nonexclusive factors to
evaluate the nature of transfers of funds to closely held
corporations: (1) The names given to the documents evidencing
the purported loans; (2) the presence or absence of fixed
maturity dates with regard to the purported loans; (3) the likely
source of any repayments; (4) whether the taxpayers could or
would enforce repayment of the transfers; (5) whether the
taxpayers participated in the management of the corporations as a
result of the transfers; (6) whether the taxpayers subordinated
their purported loans to the loans of the corporations's
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