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1990. We agree with respondent with regard to respondent’s
primary argument.
On the basis of our analysis of the above factors from Dixie
Dairies Corp. v. Commissioner, supra, that apply to the facts of
this case, we conclude that petitioners’ 1986 and 1987 transfers
to UI should be treated as contributions to the capital of UI and
not as bona fide loans.
When petitioners made the 1986 and 1987 transfers of funds
totaling $197,475 to UI, no loan agreements or promissory notes
were drafted or executed. Not until March of 1989, 2 years after
petitioners’ last transfer was made to UI, did UI execute the
1989 promissory note made payable to the family trust.
An understanding existed between petitioner and the officers
of UI that petitioners would not enforce repayment of the funds
transferred to UI unless UI became profitable and that any such
repayment would be made only out of UI’s profits. The fact that
repayment of petitioners’ transfers depended upon UI’s financial
success indicates that the 1986 and 1987 transfers did not
constitute bona fide loans. See Stinnett’s Pontiac Serv., Inc.
v. Commissioner, 730 F.2d 634, 639 (11th Cir. 1984), affg. T.C.
Memo. 1982-314; Estate of Mixon v. United States, 464 F.2d 394,
405 (5th Cir. 1972).
Also, petitioners never demanded repayment of the 1986 and
1987 transfers or executed against the collateral with regard to
the 1989 promissory note. Petitioners’ inaction tends to refute
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