- 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 NextLast modified: May 25, 2011