- 13 -
National that was executed on November 20, 1980. This factor
indicates that the advances were capital contributions.
Interest Payments
A bona fide lender is concerned with interest. National
Carbide Corp. v. Commissioner, 336 U.S. 422, 435 n.16 (1949);
Curry v. United States, 396 F.2d 630, 634 (5th Cir. 1968).
Mr. Kadlec’s purported debt instruments contained provisions for
interest. However, SLI has never paid interest (or principal) on
any of the advances in issue. The fact that Mr. Kadlec continued
to advance funds, despite SLI’s failure to make any interest (or
principal) payments due on these advances, suggests that Mr.
Kadlec made an equity contribution.
Our review of the record convinces us that an outside
creditor would not have made the advances in issue to SLI. Segel
v. Commissioner, 89 T.C. 816, 828 (1987). We conclude that these
advances were contributions to capital as opposed to bona fide
debts; therefore, petitioners are not entitled to a bad debt
deduction for 1988.4
4We note that even if the advances were loans, petitioners
would still not be entitled to a bad debt deduction, because they
have not proven that the advances became worthless in 1988.
Mueller v. Commissioner, 60 T.C. 36, 41 (1973), affd. in part,
revd. in part and remanded 496 F.2d 899 (5th Cir. 1974). Mr.
Kadlec continued to advance funds to SLI, which has continued as
a going concern. Where a debtor company continues to operate as a
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011