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iv. Right to enforce payment of interest and principal
A definite obligation to enforce the payment of principal
and interest is evidence of debt. Hardman v. United States,
supra at 1413; American Offshore, Inc. v. Commissioner, supra at
603. The absence of security for the repayment of purported debt
generally points toward equity. Roth Steel Tube Co. v.
Commissioner, supra at 632; In re Lane, supra at 1317.
We find that petitioner could enforce Kenilworth's repayment
of the advances. Although we do not also find that petitioner
could enforce the payment of interest, we give this fact little
regard. We believe that Mr. Roven's credible testimony
adequately explains the lack of an interest provision from which
petitioner could seek enforcement.
We also are untroubled by the fact that petitioner did not
receive any type of security for the advances. Mr. Roven
testified that he did not require security because Kenilworth and
petitioner were commonly owned. Moreover, Kenilworth had a solid
history of repaying petitioner timely and expeditiously. We do
not believe that the absence of security under the facts at hand
precludes a finding of debt on this factor.
This factor is neutral, and we give it no weight.
v. Participation and management
If a transferor's right to participate in the management of
the transferee corporation increases as a result of the transfer
of funds, then the transferor may be a shareholder of the
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