- 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