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American Offshore, Inc. v. Commissioner, 97 T.C. 579, 602 (1991).
The presence of a fixed maturity date may be offset by other
facts in the record.
The Notes had a set repayment schedule. The presence of
this schedule, however, is downplayed by the fact that Adult Fun
made no payments in accordance therewith. Petitioner also did
not pursue collection or inquire as to payment until Adult Fun
was defunct. The facts at hand indicate that a debtor-creditor
relationship was not contemplated by petitioner or Adult Fun.
The actions of the parties to the Notes speak louder than words.
Their actions are uncharacteristic of a bona fide debtor-creditor
relationship.
This factor weighs toward equity.
iii. Interest Rate and Payments
The presence of a fixed rate of interest and actual interest
payments weigh toward debt. The absence of payments in
accordance with the terms of a debt instrument weighs toward
equity. American Offshore, Inc. v. Commissioner, supra at 605.
Although the notes bore an interest rate of 10 percent,
Adult Fun made no principal or interest payments to petitioner
(ignoring, for the moment, the transfer of the leasehold
improvements). The record also indicates that petitioner took no
meaningful steps to enforce any amounts that were due under the
terms of the Notes.
This factor weighs toward equity.
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