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with different terms including 5 and 6 years. The note did not
state on its face that it was secured.
In exchange for the $303,233 in tangible assets and
$13,696,767 of goodwill, MDT transferred to MANB stock that it
valued at $3.5 million and a negotiable promissory note valued at
$10.5 million. The note bore interest at 10 percent, interest
only paid quarterly, with the principal due in 5 years. The note
did not state on its face that it was secured.
Nassau Lens Co. v. Commissioner, 308 F.2d 39, 47 (2d Cir.
1962), remanding 35 T.C. 268 (1960), articulated the evaluation
criteria set forth in Gilbert v. Commissioner, stating: "The
starting point is, of course, whether there is an intent to
repay, for in the absence of that no debt can be said to exist."
In reaching a conclusion as to petitioners' intent to repay, we
gave substantial weight to petitioners' delay in finalizing the
promissory notes until December 1988, over a year after the
section 351 transactions occurred.
Petitioners rely on several cases to argue that the courts
have held that absence of a formal writing does not affect the
validity of the underlying debt. See, e.g., Nat Harrison
Associates, Inc. v. Commissioner, 42 T.C. 601, 622 (1964);
Baldwin v. Commissioner, T.C. Memo. 1993-433. However, these
cases are primarily concerned with entities changing from
partnerships to corporations and do not involve such lengthy time
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