Victor I. Rosenberg and Deborah I. Rosenberg - Page 18




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          could get loans or other financing from third parties.                      
          Petitioners did not show that anyone else was willing to advance            
          funds to Cabana Boy.  Cabana Boy had little success obtaining               
          financing from third parties.  This factor favors respondent.               
               11. Subordination                                                      
               Subordination of repayment of an advance to other                      
          indebtedness suggests that the advance is equity.  See Estate of            
          Mixon v. United States, supra at 406; United States v. Henderson,           
          375 F.2d 36, 40 (5th Cir. 1967).  Petitioners point out that                
          there is no evidence that there were any subordination                      
          agreements.  However, even if there were no subordination                   
          agreements, timely payment by the alleged debtor to other                   
          creditors while not repaying advances effectively subordinates              
          the advances to the rights of the other creditors who receive               
          payment in the interim.  See American Offshore, Inc. v.                     
          Commissioner, 97 T.C. at 603; Inductotherm Indus., Inc. v.                  
          Commissioner, T.C. Memo. 1984-281, affd. without published                  
          opinion 770 F.2d 1071 (3d Cir. 1985).  Cabana Boy paid its                  
          creditors, but it never repaid petitioners and petitioners never            
          asked to be repaid.  Thus, petitioners effectively subordinated             
          their advances to those of other corporate creditors.  This                 
          factor favors respondent.                                                   










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