-10-
There is nothing in the record to suggest that petitioner's 50-
percent partnership interest in J & M decreased or was otherwise
affected by such repayment. This is compelling evidence that the
advance to Tag Coal was not tied to an equity interest in J & M,
and that the advance was a loan as opposed to a capital
contribution.
Fourth, Tag Coal's failure to repay $131,163.79 of the
amount advanced was not voluntary. The outstanding debt became
worthless only because Tag Coal was forced to declare bankruptcy
after Commonwealth defaulted on its contract. We have no reason
to think that Tag Coal would not have repaid the outstanding loan
if Tag Coal had remained solvent. Moreover, there is no
indication in the record, nor does respondent contend, that
petitioner could have foreseen that Tag Coal would become
insolvent. In sum, petitioner reasonably believed that Tag Coal
could and would repay the loan.
Petitioner's genuine intent to create a debtor-creditor
relationship, the reasonable expectation of repayment, and the
absence of any change in petitioner's equity interest in
J & M upon repayment by Tag Coal lead us to conclude that the
advance by petitioner to Tag Coal was a loan and not a capital
contribution. Accordingly, we decide this issue for petitioners.
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