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and continued lending of additional funds tends to refute the
existence of a valid debtor-creditor relationship. Boatner v.
Commissioner, supra.
Further, petitioner made these substantial advances without
obtaining any collateral or third-party guarantees. The
repayment of the notes was completely dependent on whether or not
Mr. Kelley would be able to develop and market the computer
software. This factor indicates that the advances were equity
and not debt. Stinnett's Pontiac Serv., Inc. v. Commissioner,
730 F.2d 634, 639 (11th Cir. 1984), affg. T.C. Memo. 1982-314.
Based on the record as a whole, we conclude that there was no
expectation of repayment, and that the advances did not
constitute bona fide loans.
III. Section 165--Theft Losses
Petitioner next argues, in the alternative, that the
expenses originally deducted as a section 1244 stock loss and the
$30,550 paid for the release of the computer leases are
deductible as a theft loss under section 165. Respondent
disagrees, contending that petitioners have failed to show that
Mr. Kelley committed any of the acts that would constitute the
crime of theft by deception under Ohio law.
Section 165 provides a deduction for any loss arising from
theft sustained in the year the taxpayer discovers the loss. A
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