repayment, records that may reflect the transaction as a loan,
and the borrower's solvency at the time of the loan. See Road
Materials, Inc. v. Commissioner, 407 F.2d 1121 (4th Cir. 1969),
affg. in part, vacating in part, and remanding T.C. Memo.
1967-187; Jewell Ridge Coal Corp. v. Commissioner, 318 F.2d 695,
699 (4th Cir. 1963), affg. T.C. Memo. 1962-194.
Petitioner did not provide sufficient evidence indicating
the existence of a bona fide debt. The record clearly indicates
that petitioner entered into an investment agreement with Carter.
A contribution to capital is not a debt within the meaning of
section 166. Raymond v. United States, 511 F.2d 185, 189 (6th
Cir. 1975); Hambuechen v. Commissioner, 43 T.C. 90, 99-100
(1964); sec. 1.166-1(c), Income Tax Regs. Petitioner himself
characterized his involvement with Carter as an investment in a
highly speculative business which he believed had the potential
for great rewards. Although promissory notes were issued to
petitioner in connection with the advances, no repayments were
ever made with respect to the notes, and petitioner did not
demand such repayments. Additionally, no security or collateral
was ever offered in exchange for petitioner’s advances to Carter.
We find that petitioner’s advances to Carter can fairly be
characterized as investments and not as debt within the meaning
of section 166.
As a result of petitioner’s failure to prove the existence
of bona fide debt, we need not consider whether the “debt" became
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