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(10) availability to the corporation of outside financing;
(11) use of the funds by the corporation; (12) repayment history;
and (13) the risks involved in making the transfers. Calumet
Indus., Inc. v. Commissioner, 95 T.C. 257, 285 (1990); Dixie
Dairies Corp. v. Commissioner, supra at 493. No single factor is
controlling. Dixie Dairies Corp. v. Commissioner, supra at 493.
Transfers by controlling shareholders to closely held
corporations are subject to heightened scrutiny, and labels
attached to such transfers by controlling shareholders through
bookkeeping entries or testimony have limited significance unless
the labels are supported by objective evidence. Fin Hay Realty
Co. v. United States, 398 F.2d 694, 697 (3d Cir. 1968); Dixie
Dairies Corp. v. Commissioner, supra at 495.
Petitioners argue that the $128,841 claimed business bad
debt deduction constituted bona fide business loans by them to
K&C and that the loans became worthless in 1987. Alternatively,
if the funds they transferred to K&C are to be treated as equity,
petitioners argue that a section 1244 ordinary loss deduction
should be allowed with regard thereto.
Respondent argues that the funds petitioners transferred to
K&C should be treated as contributions to the capital of K&C and
that petitioners therefore should not be allowed the claimed
$128,841 business bad debt deduction under section 166. With
regard to the alternatively claimed section 1244 loss, respondent
argues that that section would apply only to the 10,000 shares of
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