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No specific ratio of debt to equity determines whether a
corporation is adequately capitalized. 2554-58 Creston Corp. v.
Commissioner, 40 T.C. 932, 937 n.3 (1963). We have held that
debt to equity ratios of 800 to 1, American Offshore, Inc. v.
Commissioner, supra at 604; 205 to 1, 2554-58 Creston Corp. v.
Commissioner, supra at 937; and 123 to 1, Ambassador Apartments
v. Commissioner, supra at 245, showed that an advance was equity.
In Bauer v. Commissioner, supra at 1370, the U.S. Court of
Appeals for the Ninth Circuit held that debt to equity ratios
ranging from 2 to 1 to almost 8 to 1 did not show that advances
were equity. In Kraft Foods Co. v. Commissioner, 232 F.2d 118,
127 (2d Cir. 1956), the U.S. Court of Appeals for the Second
Circuit held that a debt to equity ratio of .77 to 1 did not show
that advances were equity.
Swirl's debt to equity ratios were as follows:
Year Liabilities Equity Debt-Equity Ratio
1983 $5,171,502 $2,234,108 2.31 to 1
1984 6,382,277 1,973,577 3.23 to 1
1985 5,876,278 2,075,305 2.83 to 1
1986 6,807,846 1,417,161 4.89 to 1
1987 6,667,408 1,144,964 5.82 to 1
This chart is based on audited fiscal yearend Swirl
financial statistics. Based on an unaudited mid-fiscal-year
Swirl balance sheet, respondent contends that Swirl’s debt to
equity ratio was 6.4 to 1 on December 31, 1987. Even if
respondent's computation is proper, these ratios do not establish
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