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not a corporation is thinly capitalized for Federal income tax
purposes. Development Corp. of Am. v. Commissioner, supra.
According to petitioners’ expert, Robert J. Erickson, SLI's
debt-to-equity ratios for the years ending December 31, 1981
through 1985, were as follows:
December 31 Debt Equity
1981 6.647620 to 1.000000
1982 negative equity
1983 negative equity
1984 negative equity
1985 negative equity
We believe that SLI’s debt-to-equity ratios for these years,
coupled with the fact that petitioners’ total capital
contribution since 1973 was only $250, indicate that SLI was
thinly capitalized. Such thin capitalization suggests that the
advances were equity investments.
Subordination
Whether the advances have a status equal to or inferior to
that of regular corporate creditors is of some importance in
determining whether Mr. Kadlec was dealing as a shareholder or as
a creditor. United States v. Henderson, 375 F.2d 36, 40 (5th
Cir. 1967); Nassau Lens Co. v. Commissioner, 308 F.2d at 47. In
the present case, Mr. Kadlec's advances to SLI in 1981 and 1982
were subordinated to the then-outstanding 3-year loan from Hudson
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