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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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