Joseph Nachman - Page 18

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            that petitioner’s transfer to Swirl was equity.  This ratio is                             
            consistent with holdings that the transfer was a loan.                                     
                        h.    Whether Interest is Paid                                                 
                  A shareholder's failure to insist on receiving interest may                          
            show that his or her relationship to the corporation is more like                          
            that of a shareholder than a creditor.  American Offshore, Inc.                            
            v. Commissioner, supra at 605.  See also Stinnett's Pontiac Serv.                          
            v. Commissioner, 730 F.2d 634, 640 (11th Cir. 1984), affg. T.C.                            
            Memo. 1982-314.                                                                            
                  The promissory notes Swirl exchanged for petitioner's                                
            $350,000 advance required Swirl to make monthly interest payments                          
            based on an interest rate of prime plus 2 � percent starting on                            
            November 1, 1986.  Swirl paid interest to petitioner quarterly.                            
            Swirl paid a substantial amount of interest on the notes.                                  
                  Respondent contends that the advance was equity because,                             
            from November 1, 1986, to July 2, 1988, Swirl paid interest to                             
            petitioner quarterly instead of monthly, and because Swirl paid                            
            petitioner less than the full amount of the interest it owed on                            
            the notes.  Respondent concedes that Swirl paid petitioner about                           
            two-thirds or three-fourths of the interest it owed petitioner.                            
            Even though Swirl paid only quarterly and did not pay all                                  
            required interest, we believe that petitioner was concerned about                          
            and did receive a substantial amount of interest.  This factor                             
            suggests that the transfer was a loan.                                                     






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