American Underwriters, Inc. - Page 27

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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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