- 76 - that effect, they meant that, in substance, petitioners paid no interest to LIIBV. This factor supports treating the LIIBV advances to petitioners as equity. 11. Ability of the Corporation To Obtain Loans From Outside Lending Institutions If a corporation can borrow money from outside sources when it receives a transfer of funds, the transfer is more likely to be debt. Estate of Mixon v. United States, supra at 410; Tomlinson v. 1661 Corp., supra. Petitioners contend that they could have borrowed $975,153,806 from outside sources during the years in issue on commercially reasonable terms. To support their position, petitioners cite the testimony of Jacobs, petitioners' expert Hollis W. Rademacher (Rademacher), and three letters from investment bankers. Rademacher testified that a bank would not have required the loans to be secured, but that a negative pledge or prohibition against other indebtedness for borrowed money would have sufficed. In contrast, respondent's expert, Filmore G. Enger, Jr. (Enger), testified that security would be very important for loans of this magnitude. We think Enger's view was more realistic. Generally speaking, creditors avoid subjecting funds to the risk of the borrower's business as much as possible and seek a reliable return, while shareholders take that risk and hope for a return from the business' success. Slappey DrivePage: Previous 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 Next
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