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than to stated intent. In re Lane, 742 F.2d 1311 (11th Cir.
1984). The Court of Appeals for the Fifth Circuit has said:
Primary reliance upon subjective indications of intent
is simply not an effective way of resolving * * * [the
debt versus equity] problem. In a land of hard
economic facts, we cannot root important decisions in
parties' pious declarations of intent. * * *
Texas Farm Bureau v. United States, 725 F.2d at 314. Thus, to
reveal a taxpayer's intent, we must consider not only the
pronouncements of the parties, but also the circumstances
surrounding the transaction. Tyler v. Tomlinson, 414 F.2d at
850.
Petitioners referred to the advances as loans, and surely
wanted the advances to be treated as loans; however, that is not
the same as intending the advances to be loans. Despite
petitioners' worsening finances, LIIBV made large advances,
extended the terms for payment, and did not seek security in the
written agreements. Petitioners did not intend in substance to
pay interest; they intended LIIBV to advance funds whenever
interest was due. Petitioners intended LIIBV to continue to
advance funds with no expectation that petitioners would repay.
LTL represented to Canadian tax officials that the loans are "in
the nature of capital contributions". This factor supports
treating the LIIBV advances to petitioners as equity.
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