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creditor and a stockholder is that the latter intends to make an
investment and take the risks of the venture, while the former
seeks a definite obligation, payable in any event." In Nassau
Lens Co. v. Commissioner, 308 F.2d 39, 46 (2d Cir. 1962),
remanding 35 T.C. 268 (1960), the Court of Appeals for the Second
Circuit observed that whatever interests a stockholder chooses to
take in a corporation, whether debt or equity, should be
recognized as such, "so long as that investment has substantial
economic reality in terms of the objective factors which normally
surround the type [of investment] chosen", and so long as it
complies "with arm's-length standards". See also Dixie Dairies
Corp. v. Commissioner, 74 T.C. 476, 494 (1980) (quoting Estate of
Mixon v. United States, 464 F.2d 394, 403 (5th Cir. 1972)
(referring to the need to determine whether "the transaction
complies with arm's length standards and normal business
practice")). These objective factors include the corporation's
ability to repay and the likelihood of repayment, as well as
whether the parties complied with arm's-length standards and
normal business practice.
Against this background, it is clear that petitioner's
transfers to GAPS and JJM were capital contributions, rather than
debt. The only evidence of loans is petitioner's and his
accountant's testimony and the "fill in the blank" promissory
notes. However, there were no prepayment schedule, no source
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