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Section 166 provides for deductions against ordinary income
for business bad debts that become worthless during the year. To
be entitled to the deduction, the taxpayer must prove a bona fide
debtor-creditor relationship obligating the debtor to pay the
creditor-taxpayer a fixed or determinable sum of money. Calumet
Indus., Inc. v. Commissioner, 95 T.C. 257 (1990). Contributions
to capital are not considered debt. Kean v. Commissioner, 91
T.C. 575, 594 (1988); sec. 1.166-1(c), Income Tax Regs. The
classification of a payment as debt or equity for Federal tax
purposes is a question of fact. Segel v. Commissioner, 89 T.C.
816, 827 (1987).
The fact that the debtor and creditor are related parties
does not preclude the existence of a bona fide debt. Calumet
Indus., Inc. v. Commissioner, supra at 286. However, the form of
the transaction and the labels parties place on the transaction
may not have as much significance when the corporation is closely
held because the parties are free to mold the transaction. Fin
Hay Realty Co. v. United States, 398 F.2d 694, 697 (3d Cir.
1968). For this reason, petitioner’s characterization of the
fund transfer as an open account receivable is not determinative.
In resolving similar questions of debt versus equity,
various appellate courts have identified and considered similar
factors. See, e.g., Estate of Mixon v. United States, 464 F.2d
394, 402 (5th Cir. 1972) (13 factors); A.R. Lantz Co. v. United
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