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accountant's (Tsukamoto's) after-the-fact testimony that, in
retrospect, he should have considered the advances as equity and
reported them as such on petitioner's tax returns.
Petitioner's approach does not show that the substance of
the advances was not loans. It merely illustrates that the
parties to the transactions did not follow all of the formalities
that might be considered probative that the advances were debt
rather than equity. In that regard, petitioner has not shown
that the form of the transaction did not comport with its
substance. We must take into consideration here the fact that
both petitioner and its parent were corporations formed under the
laws of Japan and that they are foreign entities conducting
business in the United States. Additionally, when the "home
office" (foreign parent corporation's office) was asked for
evidence of the indebtedness, it provided a foreign language
document, which was translated to reflect the title
"Confirmation/Acknowledgment" and contained a list of advances
and dates made. With respect to each advance, the document
indicates that "Payment of principal is the priority" and that
the rate of payment is "Short-term prime". These descriptive
terms are indicative of debt and interest rather than equity or
capital.
10(...continued)
Ventures, Inc. v. Commissioner, T.C. Memo. 1995-155.
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