Joseph Nachman - Page 15

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            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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