- 22 -
662 (9th Cir. 1960), affg. 31 T.C. 938 (1959). This could be the
case if it appears that the recipient of the transfer treats an
obligation to repay the transfer as less bona fide than its other
obligations, such as, for example, if the recipient of the funds
paid other expenses or made other payments to the person
providing the funds while not repaying the advance at issue.
Swirl did not pay petitioner the principal on the notes, and New
Swirl did not assume petitioner's $350,000 advance as a
liability, even though it bought Swirl’s assets and assumed most
of its liabilities. This factor suggests that the transfer was
equity.
5. Conclusion
While no single factor controls, according to the
preponderance of the evidence, we hold that petitioner's $350,000
advance was debt.
B. The Amount of Petitioner’s Bad Debt Deduction for 19884
1. Petitioner's Calculation
Elias calculated petitioner's 1988 bad debt deduction by
netting the face amounts of the facility purchase mortgage, the
May 1985 loan, and the $350,000 October 1986 loan. Elias first
subtracted $270,000, the amount of the May 1985 loan which Swirl
was required to pay petitioner, from $312,500, the face amount of
the facility purchase mortgage which petitioner owed to Swirl,
4 The parties agree that if the advance is debt it became
worthless in 1988.
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