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1979, petitioner acquired all 360 outstanding shares of McZand
Corporation stock. The only amount that the McZand Corporation
characterized as shareholder contribution to capital was $500.
However, as of December 31, 1977, the McZand Corporation
financial records show $324,145.50 of claimed debt due each to
Bill McCabe and the same amount of claimed debt due
(collectively) to petitioner and his children. At the time of
these advances by McCabe and petitioner in September 1977,
additional capital contributions, also in the form of advances,
were contemplated. As of July 1978 the claimed debt amount from
McZand Corporation to McCabe was $532,545.50, with the same
amount shown as a claimed debt to petitioner and his children.
As of December 1979 the claimed debt due from McZand
Corporation to petitioner and his children was $772,827.69, the
same amount claimed due to McCabe. The claimed McZand
Corporation debt to McCabe and to petitioner and his children was
subordinated to bank and development loans. At all times prior
to October 1979 the claimed McZand Corporation debt to
petitioner's family and McCabe was in the same proportion as
McCabe's and petitioner's family's stock holdings. None of the
notes evidencing these debts was secured, nor was there
collateral for them. Although McZand did not pay interest on the
claimed debt, the claimed interest rate was 6 percent. As of
February 1978 the McZand corporate debt to CNB was 8.75 percent.
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