Joseph Nachman - Page 19

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                        i.    The Extent to Which the Advance Is Used To                               
                              Acquire Capital Assets                                                   
                  An advance is more like equity if it is used to acquire                              
            capital assets.  Estate of Mixon v. United States, 464 F.2d at                             
            410.  Swirl used the $600,000 transferred by petitioner and his                            
            brother as working capital.  This factor suggests that the                                 
            transfer was a loan.                                                                       
                  3.    Factors Which Are Neutral                                                      
                        a.    Whether an Outside Lender Would Have Lent Funds                          
                              to the Corporation When The Advance Was Made                             
                  If an outside source would not lend funds to a corporation                           
            when funds are advanced by a shareholder, the advance is more                              
            likely to be equity.  Estate of Mixon v. United States, 464 F.2d                           
            at 410; American Offshore, Inc. v. Commissioner, supra at 605.                             
            If the shareholder's advance was made under terms that are far                             
            more speculative than an outside lender would accept, the advance                          
            is likely to be a loan in name only.  Fin Hay Realty Co. v.                                
            United States, 398 F.2d at 697; Segel v. Commissioner, 89 T.C.                             
            816, 828 (1987).                                                                           
                  Respondent contends that no reasonable lender would lend                             
            money to Swirl when petitioner made the $350,000 advance because                           
            Swirl had losses in 3 of the 4 fiscal years before petitioner                              
            made the advance in 1986, Chemical Bank wanted to end its                                  
            lending relationship with Swirl, and Swirl had a working capital                           
            shortfall which created losses of about $1 million from                                    
            September 30, 1985, to September 30, 1986.  Respondent also                                




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