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Commissioner, 318 F.2d 695, 698 (4th Cir. 1963), affg. T.C. Memo.
1962-194.
We have considered all of the factors set forth above, as
well as all of the circumstances revealed by the record, and
discuss below those we find most pertinent. We note first that
the 1981 transaction was cast in the form of a loan. Petitioner
points out that the note was prepared as evidence of Associates'
obligation to repay petitioner, although the note was not
produced at trial due to its loss in a flood. Associates' books
were not introduced in evidence; however, its relevant tax
returns report an increase and decrease in its indebtedness that
may reflect the 1981 transaction and 1988 distribution.
Petitioner also testified that he made a "loan" to Associates
during 1981 that was "repaid" during 1988.
The existence of a debt, however, does not necessarily
follow. Road Materials, Inc. v. Commissioner, supra at 1124.
The law requires more than "a declaration of intention to create
an indebtedness and more than the existence of corporate paper
encrusted with the appropriate nomenclatural captions." Tyler v.
Tomlinson, 414 F.2d 844, 850 (5th Cir. 1969). The 1981
transaction will not be treated as a debt for Federal tax
purposes merely because it is evidenced in a manner that Virginia
law recognizes as debt.4 Road Materials, Inc. v. Commissioner,
4 It is also not conclusive that, by paying off the credit
(continued...)
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