Northern Indiana Public Service Company - Page 18

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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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