American Underwriters, Inc. - Page 15

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          out of dividend money.  Hardman v. United States, 827 F.2d 1409,            
          1411-1412 (9th Cir. 1987); Bauer v. Commissioner, supra at 1368;            
          A. R. Lantz Co. v. United States, supra at 1333.  These factors             
          help distinguish:  (1) Shareholders who transfer money to                   
          corporations in exchange for equity interests that are repayable            
          based on the corporations' performance, from (2) creditors who              
          transfer money to corporations in return for obligations that are           
          payable regardless of the corporations' performance.  Bauer v.              
          Commissioner, supra at 1367; A. R. Lantz Co. v. United States,              
          supra at 1334.                                                              
               The above-mentioned factors focus primarily on ascertaining            
          the intent of the parties to the transfer through their objective           
          and subjective expressions.  Bauer v. Commissioner, supra at                
          1367; A. R. Lantz Co. v. United States, supra at 1333-1334;                 
          Litton Bus. Sys., Inc. v. Commissioner, 61 T.C. 367, 377 (1973).            
          In passing on their intent, we ask ourselves:  (1) Did they truly           
          intend to create a debt, (2) was their intention consistent with            
          the economic reality of creating a debtor-creditor relationship,            
          (3) did the transferor reasonably expect to be repaid, and                  
          (4) would an unrelated lender have advanced money to the                    
          transferee in the same amount and on the same terms.  Litton Bus.           
          Sys., Inc. v. Commissioner, supra at 377.  We look to the                   
          substance of the transfer, rather than its form.  Gregory v.                
          Helvering, 293 U.S. 465 (1935); Hardman v. United States, supra             
          at 1411.  We apply special scrutiny in cases such as this one,              




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