- 16 - The characterization of these payments depends upon whether Mr. Acquaviva and Magnum intended to create a bona fide debtor- creditor relationship. Williams v. Commissioner, 627 F.2d 1032 (10th Cir. 1980), affg. T.C. Memo. 1978-306; Commissioner v. Makransky, 321 F.2d 598, 600 (3d Cir. 1963), affg. 36 T.C. 446 (1961). If a bona fide debtor-creditor relationship existed, then the payments by Magnum may be properly characterized as the repayment of that debt. See, e.g., Schaefer v. Commissioner, T.C. Memo. 1994-444. If however, as respondent contends, there was no bona fide debtor-creditor relationship, then the payments may be characterized as dividends to Mr. Acquaviva. See Fin Hay Realty Co. v. United States, 398 F.2d 694, 697 (3d Cir. 1968); Commissioner v. Makransky, supra. The proper characterization is a question of fact to be determined on the basis of all of the facts and circumstances. Gilbert v. Commissioner, 262 F.2d 512, 513 (2d Cir. 1959), affg. T.C. Memo. 1958-8; Georgia-Pac. Corp. v. Commissioner, 63 T.C. 790, 795 (1975). The burden is on petitioner to show that there existed a bona fide indebtedness and that the amounts in question were the repayment of that debt. Rule 142(a). Courts have considered various factors in determining whether shareholder advances are debt or contributions to capital.6 In making our determination, we recognize that 6 The Court of Appeals for the Third Circuit, to which (continued...)Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Next
Last modified: May 25, 2011