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depends, in part, on whether petitioner’s alleged transfers of
property to GAPS and JJM in earlier years were loans or
contributions to capital. The corporate payments cannot be loan
repayments if there are no loans to repay. Whether an advance by
a shareholder to a corporation is a loan or a contribution to
capital is a question of fact, Georgia-Pac. Corp. v.
Commissioner, 63 T.C. 790, 795 (1975); Magee v. Commissioner,
T.C. Memo. 1993-305, and each debt-equity case must be decided on
its own facts. We therefore take a facts and circumstances
approach in deciding whether the payments from petitioner to GAPS
and JJM were debt or equity.
When a shareholder makes an otherwise undocumented transfer
of money or property to his corporation, a strong inference
arises that the transfer is a contribution to capital rather than
a loan. Dobkin v. Commissioner, 15 T.C. 31, 33 (1950).
Petitioner bears the burden of proving that he lent the cash and
furniture to GAPS and JJM. Arlington Park Jockey Club v. Sauber,
262 F.2d 902, 905 (7th Cir. 1959). In distinguishing debt from
equity, courts have looked through taxpayers' labels to determine
whether an advance creates a debtor-creditor relationship.
The Court of Appeals for the Seventh Circuit, to which an
appeal in this case would lie, said in Commissioner v. Meridian &
Thirteenth Realty Co., 132 F.2d 182, 186 (7th Cir. 1942), revg.
44 B.T.A. 865 (1941): "the essential difference between a
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