Cerand & Company, Inc. - Page 9

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          has the burden of proof unless otherwise provided by statute or             
          the Court).                                                                 
               Second, the payments themselves may denote the nature of               
          debt or equity.  The source, the consistency, and the enforcement           
          of repayment are factors to consider.  The repayment to                     
          petitioner was inconsistent and appeared dependent on financial             
          success.  Accordingly, the source of the repayment was more like            
          equity rather than debt.  Moreover, while petitioner insists that           
          there was a right to enforce payments from the three companies,             
          petitioner never made any efforts to do so beyond recovering the            
          cash surrender value of FWC’s life insurance policy on Mr.                  
          Cerand.                                                                     
               The third group of factors are those factors traditionally             
          considered by lenders, such as capitalization, risk, the                    
          availability of financing from outside sources and the use to               
          which advances are put.  “[T]he touchstone of economic reality is           
          whether an outside lender would have made the payments in the               
          same form and on the same terms.”  Segel v. Commissioner, supra             
          at 828.  The three new companies were thinly capitalized, with no           
          capital assets, and more than $1.4 million was advanced over time           
          to meet operating expenses.  With thin capitalization and no                
          historical success, there was considerable risk in advancing the            
          funds.  That risk became reality when the three companies failed            
          to repay over two-thirds of the money they received from                    





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