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points out that five potential lenders refused to replace
Chemical Bank as Swirl's creditor. Respondent contends that this
shows that Swirl could not borrow funds from an outside source
when petitioner transferred the $350,000 in October 1986. We
disagree. First, Swirl had a profit in 1985, the year preceding
the year petitioner made the advance at issue. Second, in
September 1986, Chemical Bank told Swirl that it would not
require Swirl to find new financing. In October 1986, Chemical
Bank executed the new agreement with Swirl. The execution of the
new agreement shows that Swirl could continue to borrow funds
from an outside lender.
However, the new agreement with Chemical Bank required
petitioner and his brother to provide $500,000 of working capital
to Swirl. Petitioner has not shown that an outside lender would
have provided funds to Swirl under the same terms as were
accepted by Petitioner and his brother. Because Swirl could
borrow funds when petitioner made the advance, but not under the
same terms, we conclude that this factor is neutral.
b. Whether Shareholders Provide Funds In Proportion
to Their Stock Interest
An advance is more likely to be equity if it is
proportionate to the shareholder's stock ownership. Segel v.
Commissioner, supra at 830. A sharply disproportionate ratio
between a stockholder's percentage stock holdings and debt,
however, may indicate that the advance is debt. American
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