- 15 -
having earnings. This factor suggests that the transfer was a
loan.
e. Whether the Party Providing the Funds is Given
an Increased Participation in Management
A taxpayer's payment is more like equity if, in exchange for
it, the taxpayer is given an increased right to participate in
management. American Offshore, Inc. v. Commissioner, supra at
603. Petitioner's transfer of $350,000 did not increase his
right to participate in Swirl's management. This factor suggests
that the transfer was a loan.
f. Intent of the Parties
The intent of the parties may show whether a transfer of
funds was debt or equity. Ambassador Apartments, Inc. v.
Commissioner, supra at 246. If a corporation does not make
required payments or a shareholder does not enforce his or her
right to receive payments, an advance appears more like equity
than debt. Id.
Petitioner testified that he and Swirl intended the transfer
to be a loan. Swirl treated the notes as debt on its financial
statements and Federal income tax returns. Petitioner reported
Swirl's payments as interest income on his tax returns.
Respondent points out that petitioner did not sue Swirl or
New Swirl to recover amounts due under the notes. Respondent
contends that this fact and the fact that Swirl did not repay the
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