Deja Vu, Inc. - Page 16

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          advances were presumably intended to meet Adult Fun's daily                 
          needs, the majority of the funds were used for remodeling                   
               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           
               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);                 

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