- 60 -
date may indicate that an advance is equity. Estate of Mixon v.
United States, supra at 405; Dillin v. United States, 433 F.2d
1097, 1101-1102 (5th Cir. 1970).
Petitioners contend that this factor should not weigh
against them merely because they refinanced the LIIBV loans.
Petitioners contend that refinancings are a common banking
practice. Petitioners rely on Green Bay Structural Steel, Inc.
v. Commissioner, 53 T.C. 451, 457 (1969). We disagree. In Green
Bay Structural Steel, we decided that refinanced subordinated
notes were bona fide indebtedness for which the taxpayer could
deduct interest. That is not the case here. Also, there was no
evidence that there was a circular flow of funds in Green Bay
Structural Steel. See par. II-D-10, below.
Petitioners contend that the payment on demand feature does
not suggest that the advances were equity here because the LIIBV
directors were independent from LTL, and they controlled whether
a demand for payment would be made. We disagree as discussed at
par. II-C, above. This factor supports treating the LIIBV
advances to petitioners as equity.
3. The Source of Payments, i.e., Whether the Recipient of Funds
Can Repay the Advance With Reasonably Anticipated Cash-Flow
or Liquid Assets
An advance is more likely to be equity if the recipient does
not have liquid assets or reasonably anticipated cashflow from
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