- 9 - 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 fromPage: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011