- 9 -9
obvious from our findings of fact that the record herein is
totally lacking in evidence sufficient to support petitioners'
contention that the guarantee and the payment thereon were
anything but capital in nature. The parties have stipulated that
Dutchess was undercapitalized, and the record is devoid of any
evidence as to the amount that any of the shareholders invested
in Dutchess in addition to the guarantee of the Dutchess'
indebtedness. Glenn Peterson guaranteed indebtedness used to
purchase apples sold by Dutchess to its principal customers.
Thus the indebtedness was an essential element in financing
Dutchess' operations.
We think the approach of the Court of Appeals for the Fifth
Circuit in dealing with a comparable situation in Plantation
Patterns, Inc. v. Commissioner, 462 F.2d at 722-723, is
particularly applicable herein:
The guarantee enabled Mr. Jemison to put a minimum
amount of cash into New Plantation immediately, and to
avoid any further cash investment in the corporation
unless and until it should fall on hard times. * * *
we think that the result is that Mr. Jemison's
guarantee simply amounted to a covert way of putting
his money "at the risk of the business". Stated
differently, the guarantee enabled Mr. Jemison to
create borrowing power for the corporation which
normally would have existed only through the presence
of more adequate capitalization of New Plantation.
Indeed this approach coincides with the analysis which this Court
applied in disposing of three cases involving facts very similar
to those involved here, namely, Titmas v. Commissioner, T.C.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011