- 16 -
advances were presumably intended to meet Adult Fun's daily
needs, the majority of the funds were used for remodeling
expenses.
This factor weighs toward equity.
xi. Presence or Absence of a Sinking Fund
The failure to establish a sinking fund for repayment weighs
toward equity. Roth Steel Tube Co. v. Commissioner, supra at
632; Lane v. United States, 742 F.2d at 1317; Raymond v. United
States, supra at 191; Austin Village v. Commissioner, 432 F.2d at
745.
The record does not indicate that Adult Fun established a
sinking fund for the repayment of the purported notes. To the
contrary, repayment was to come solely from Adult Fun's earnings.
This factor weighs toward equity.
xii. Conclusion
The advances were contributions to Adult Fun's equity.
Accordingly, petitioner may not deduct any loss on the advances
under section 166(a).
3. Section 6651
Respondent determined an addition to tax under section
6651(a)(1), asserting that petitioner failed to file a timely
Federal income tax return for the 1989 taxable year. In order to
avoid this addition to tax, petitioner must prove that its
failure to file timely was: (1) Due to reasonable cause and
(2) not due to willful neglect. Sec. 6651(a); Rule 142(a);
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011