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T.C. Memo. 1956-137; Peraino v. Commissioner, T.C. Memo. 1982-
524, affd. without opinion 742 F.2d 1437 (2d Cir. 1983).
Petitioners stipulated that Mr. Kadlec anticipated repayment of
his advances would come out of the profits from product sales
and, for the 1984 and 1985 advances, from the rental income
generated from the sublease with Datatrol. Thus, Mr. Kadlec did
not enjoy an expectation of repayment, regardless of the success
of the business. Gilbert v. Commissioner, supra at 406. This is
an additional factor pointing to a finding that the advances
constituted contributions to capital rather than loans.
Thin Capitalization
A corporation’s debt-to-equity ratio compares the
corporation's total liabilities to its stockholders’ equity.
Development Corp. of Am. v. Commissioner, T.C. Memo. 1988-127.
Examining the debt-to-equity ratio enables us to determine
whether a corporation is so thinly capitalized that a business
loss would result in an inability to repay the advance. Such
thin capitalization would be indicative of a capital contribution
rather than a loan. Bauer v. Commissioner, 748 F.2d 1365, 1369
(9th Cir. 1984), revg. T.C. Memo. 1983-120. Despite numerous
judicial opinions on this issue, no clear cut set of standards or
agreed-upon mathematical formula exists to determine whether or
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