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controlling or decisive by itself and the particular
circumstances of each case must be considered by the court. Roth
Steel Tube Co. v. Commissioner, supra at 630. “These factors are
merely tools to be used in evaluating whether the transaction as
a whole was effected with a genuine intention to create a debt,
with a reasonable expectation of repayment, and within the
economic realities of a debtor-creditor relationship.” Recklitis
v. Commissioner, 91 T.C. 874, 905 (1988).
I. The Rowes’ Objectives for Characterizing the Cash Transfers
as Debt
The Rowes’ characterized the cash transfers as debt because
they wanted to receive a 10-percent return on their investment
and minimize estate taxes. Mr. Rowe testified that they received
advice from numerous estate planners and decided to characterize
the transfers as loans because “we felt additional equity would
only hurt the family at our death.” For nearly 12 of the 14
years, from 1987 to 2000, the 10-percent rate charged by the
Rowes was above the market and prime interest rates. For
example, in 1998 when the prime rate was 8.5 percent, petitioner
executed loan agreements with the Rowes and FTB at fixed rates of
10 and 7.5 percent, respectively. Mr. Rowe testified,
unconvincingly, that the higher rate charged by the Rowes
4(...continued)
Commissioner, 800 F.2d 625, 630-632 (6th Cir. 1986), affg. T.C.
Memo. 1985-58.
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