- 22 -
transferee rather than its creditor. A transferor's ability to
participate in the transferee's management may increase through
greater voting rights or a greater ownership interest.
Hardman v. United States, supra at 1413; Estate of Mixon v.
United States, 464 F.2d at 406; Lundgren v. Commissioner, 376
F.2d 623, 626 (9th Cir. 1967), revg. T.C. Memo. 1965-314;
American Offshore, Inc. v. Commissioner, supra at 603.
We find no evidence in the record to suggest that
petitioner's right to participate in Kenilworth's management
increased as a result of the advances. We find it unlikely,
however, that such an increase could have occurred, given the
fact that petitioner had no ownership interest in Kenilworth and
that Mr. Roven controlled both entities.
This factor favors classifying the advances as debt.
vi. Subordination
Subordination of purported debt to the claims of other
creditors points towards equity. Hardman v. United States,
supra at 1413; Roth Steel Tube Co. v. Commissioner, supra at
631-632; Stinnett's Pontiac Serv., Inc. v. Commissioner, 730 F.2d
634, 639 (11th Cir. 1984), affg. T.C. Memo. 1982-314. The fact
that an obligation to repay is subordinate to claims of other
creditors, however, does not necessarily mean that the purported
debt is really equity. This is especially true when the advance
is given a superior status to the claims of shareholders.
Estate of Mixon v. United States, supra at 406.
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