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transactions between shareholders and their closely held
corporations require special scrutiny because of the apparent
lack of a true arm's-length relationship between the two. Fin
Hay Realty Co. v. United States, supra at 697; J.A. Tobin Constr.
Co. v. Commissioner, 85 T.C. 1005, 1022 (1985). This scrutiny is
particularly applicable where a shareholder advances funds to a
corporation and characterizes the transaction as creating a
corporate obligation instead of a contribution to capital. Fin
Hay Realty Co. v. United States, supra at 697.
Petitioner argues that the requisite intent to create a bona
fide debt existed between Mr. Acquaviva and Magnum. In support
6(...continued)
appeal in this case lies, uses the following nonexclusive list of
16 factors:
(1) the intent of the parties; (2) the identity between
creditors and shareholders; (3) the extent of participation
in management by the holder of the instrument; (4) the
ability of the corporation to obtain funds from outside
sources; (5) the "thinness" of the capital structure in
relation to debt; (6) the risk involved; (7) the formal
indicia of the arrangement; (8) the relative position of the
obligees as to other creditors regarding the payment of
interest and principal; (9) the voting power of the holder
of the instrument; (10) the provision of a fixed rate of
interest; (11) a contingency on the obligation to repay;
(12) the source of the interest payments; (13) the presence
or absence of a fixed maturity date; (14) a provision for
redemption by the corporation; (15) a provision for
redemption at the option of the holder; and (16) the timing
of the advance with reference to the organization of the
corporation. [Fin Hay Realty Co. v. United States, 398 F.2d
694, 696 (3d Cir. 1968); fn. ref. omitted.]
These factors are only aids to be used in determining
whether a bona fide debtor-creditor relationship existed between
Mr. Acquaviva and Magnum. See id. at 697.
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