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Donisi v. Commissioner, 405 F.2d 481 (6th Cir. 1968), affg. T.C.
Memo. 1967-62. Whether a transaction between a shareholder and
his closely held corporation represents a bona fide indebtedness
must be determined based on the facts and circumstances
surrounding the transaction. Electric & Neon, Inc. v.
Commissioner, 56 T.C. 1324, 1338-1339 (1971), affd. without
published opinion 496 F.2d 876 (5th Cir. 1974). The shareholder's
mere statement that he considered the distributions to be
repayments of loans is not sufficient to show that the intrinsic
economic nature of the transactions themselves is that of a debt
rather than a constructive dividend. Williams v. Commissioner,
supra; Alterman Foods, Inc. v. United States, 505 F.2d 873, 876-
877 (5th Cir. 1974); Cordes v. Commissioner, T.C. Memo. 1994-377.
The only records of funds transferred between Mr. Sutton and
the corporate petitioner were the limited books of the corporate
petitioner; i.e., the financial statements and the corporate tax
returns. These records indicated that Mr. Sutton owed the
corporation for funds loaned to him, not vice versa. Ms. Stroud
recorded any bank deposits identified as advances from Mr. Sutton
as reductions in what Mr. Sutton owed the corporate petitioner,
not as loans from him. There were no promissory notes, repayment
schedules, interest charges, or other credible evidence of any
loans from Mr. Sutton to his corporation. It follows that the
cash proceeds of the rebate and coupon checks were constructive
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