- 38 -38
relationship is a question of fact to be determined from all the
facts and circumstances. Hambuechen v. Commissioner, 43 T.C. 90,
99 (1964); see Dixie Dairies Corp. v. Commissioner, 74 T.C. 476
(1980). "The ultimate question [is] whether the investment,
analyzed in terms of its economic reality, constitutes risk
capital entirely subject to the fortunes of the corporate
venture" or represents a loan for which repayment was expected
regardless of the success of the venture. Dixie Dairies Corp. v
Commissioner, supra at 494. The conduct of AlliedSignal and ABN
confirms that they had a debtor-creditor relationship.
A. AlliedSignal
AlliedSignal did not recruit the foreign partner. Instead,
it accepted Merrill Lynch's package deal that included a
preselected partner. It is both typical and rational for bona
fide partners to meet and negotiate prior to engaging in a $1
billion transaction involving numerous steps, complex swap
arrangements, and investments in sophisticated financial
instruments. Yet, AlliedSignal's Executive Committee approved
the plan before it even knew the identity of the foreign partner.
The Board approved the plan 2 weeks after the venture began.
AlliedSignal, like a typical borrower, was only concerned that a
strong, reputable bank was financing the transaction. The
identity of the bank was irrelevant.
AlliedSignal spent a considerable amount of time ensuring
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