- 19 -
"necessary first assets". Texas Farm Bureau v. United States,
725 F.2d at 314. Moreover, National also used the advance to
acquire Action, a capital asset.
11. Failure of the Corporation To Repay on the Due Date or
Seek a Postponement
The Court of Appeals for the Eleventh Circuit stated in In
re Lane that "This factor and the * * * intent of the parties
factor are, we believe, the most telling of the Mixon factors".
In re Lane, 742 F.2d at 1317. National made no attempt to repay
its obligation to petitioner, nor did it ever seek to defer
payment or restructure the note as it did with the Action note.
See Tyler v. Tomlinson, 414 F.2d at 849.
Having applied the foregoing factors to the facts of this
case, and after careful consideration of those factors which
support opposing conclusions, we think it is evident that the
advance was a contribution to capital and not a bona fide debt.
Whatever petitioner's subjective intent regarding the
contribution at issue, the preceding analysis demonstrates that
he could not reasonably have expected repayment on the terms of
the Fries note at the time it was executed. Moreover, his intent
did not comport with that of National, or with the economic
reality of creating a true debtor-creditor relationship. We
hold, therefore, that petitioners may not claim a bad debt
deduction under section 166 for the advance petitioner made to
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