- 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 Drive
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