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This factor is neutral, and we give it no weight.
xi. Inability to obtain financing
The question of whether a purported debtor could have
obtained comparable financing is relevant in measuring the
economic reality of a transfer. Estate of Mixon v. United
States, 464 F.2d at 410. Evidence that the purported debtor
could have obtained loans from outside sources points toward
debt. Evidence that the taxpayer could not obtain loans from
independent sources points toward equity. Calumet Indus., Inc. &
Subs. v. Commissioner, 95 T.C. at 287. We look to whether the
terms of the purported debt were a "patent distortion of what
would normally have been available" to the debtor in an arms-
length transaction. See Litton Bus. Sys., Inc. v. Commissioner,
61 T.C. at 379.
The record contains no persuasive evidence on whether
Kenilworth could have obtained financing from an unrelated party
at the relevant times. Kenilworth's history of making repayments
to petitioner, however, is a fact that we believe any reasonable
creditor would look favorably upon in deciding whether to loan
money to Kenilworth. The same is true with respect to
Kenilworth's increased earnings from its 1985 taxable year to its
1986 taxable year. See Bauer v. Commissioner, supra at
1369-1370.
This factor favors classifying the advances as debt.
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