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Inability of SLI to Obtain Funds from Outside Sources
In Segel v. Commissioner, 89 T.C. at 832, we explained that
the focus of this factor "is not simply on the ability of a
corporation to obtain the funds from outside sources; rather, the
focus is whether an outside lender would have lent the funds on
the same or similar terms.” The record in this case clearly
establishes that an independent outside lender would not have
made the same advances to SLI as did Mr. Kadlec. The corporate
minutes from a special meeting of SLI’s board of directors on
April 22, 1981, state that Hudson National required Mr. Kadlec to
personally countersign the borrowing. In addition, corporate
minutes from meetings of SLI’s board of directors on April 20,
1982, and May 6, 1986, indicate that advances from Mr. Kadlec
were necessary, because SLI no longer had any outside sources
available for borrowing. Presence of this factor indicates that
the advances were contributions to capital.
The Risk Involved
Advances by a shareholder that are placed at the risk of the
corporation's business are likely to be considered contributions
to capital. Nassau Lens Co. v. Commissioner, 308 F.2d 39, 47 (2d
Cir. 1962), remanding 35 T.C. 268 (1960); Gilbert v.
Commissioner, 248 F.2d 399, 406-407 (2d Cir. 1957), remanding
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