- 79 -
objective evidence does not corroborate their testimony on this
point. Petitioners' loans from commercial banks totaled much
less than $975,153,806, and were on terms substantially less
favorable than the agreements accompanying petitioners' advances
from LIIBV.
Petitioners could have borrowed some money from outside
lenders. However, we do not think that they could have borrowed
$975,153,806, or that they could have done so on terms close to
the favorable terms that they received from LIIBV. This factor
supports treating the LIIBV advances to petitioners as equity.
12. The Extent to Which the Recipient Used the Advance To
Acquire Capital Assets
A corporation's use of cash advances to acquire capital
assets suggests that an advance is equity. Estate of Mixon v.
United States, 464 F.2d at 410. Use of an advance by an ongoing
business to expand its operations, e.g., by acquiring an existing
business, suggests that the advance is equity. Plantation
Patterns, Inc. v. United States, 462 F.2d. at 713-716, 722; Tyler
v. Tomlinson, 414 F.2d. at 846, 848-849.
Petitioners used most of the advances from LIIBV to expand
their operations, especially by acquiring other companies, e.g.,
GSX. Petitioners told Canadian tax authorities that LTL's
advances to U.S. subsidiaries through LIIBV were capital
investments which formed a part of the subsidiaries' permanent
capital.
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