- 7 -
determinable sum of money. Sec. 1.166-1(c), Income Tax Regs.
This is in contrast to a contribution to capital or equity
investment, which is not considered debt for purposes of section
166. Kean v. Commissioner, 91 T.C. 575, 594 (1988); sec. 1.166-
1(c), Income Tax Regs. Respondent determined that Mr. Kadlec’s
advances to SLI constituted capital contributions as opposed to
loans. Respondent's determination is presumed correct, and
petitioners bear the burden of proving otherwise. Rule 142(a);
Welch v. Helvering, 290 U.S. 111 (1933); Dixie Dairies Corp. v.
Commissioner, 74 T.C. 476, 493 (1980).
The characterization of advances to a corporation by a
shareholder is a question of fact to be determined from all the
facts and circumstances. Gilbert v. Commissioner, 262 F.2d 512,
513 (2d Cir. 1959), affg. T.C. Memo. 1958-8; Georgia-Pacific
Corp. v. Commissioner, 63 T.C. 790, 795 (1975). Courts have
considered the following nonexclusive list of factors in
determining whether advances, such as those involved in the
instant case, are loans or equity investments:
(1) the intent of the parties; (2) the identity between
creditors and shareholders; (3) the extent of
participation in management by the holder of the
instrument; (4) the ability of the corporation to
obtain funds from outside sources; (5) the "thinness"
of the capital structure in relation to debt; (6) the
risk involved; (7) the formal indicia of the
arrangement; (8) the relative position of the obligees
as to other creditors regarding the payment of interest
and principal; (9) the voting power of the holder of
the instrument; (10) the provision of a fixed rate of
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011