- 80 -
Petitioners contend that this factor applies only to capital
expenses for the initial operations of a business. Petitioners
rely on Slappey Drive Indus. Park v. United States, supra at 583.
Most of the advances in that case were used to finance the
initial operations of a business. Id. However, the Court of
Appeals for the Fifth Circuit did not hold in that case that an
advance must be used to buy capital assets for a new business for
it to be treated as equity.
This factor supports treating the LIIBV advances to
petitioners as equity.
13. Whether the Recipient Repaid the Funds on the Due Date
The failure of a corporation to repay principal amounts on
the due date indicates that advances were equity. Estate of
Mixon v. United States, supra; see Slappey Drive Indus. Park v.
United States, supra at 582. LIIBV repeatedly deferred and
extended the vast majority of principal payments.
Petitioners contend that extending the due date is the same
as repaying on the due date. Petitioners cite Litton Bus. Sys.
Inc. v. Commissioner, 61 T.C. 367 (1973), and C.M. Gooch Lumber
Sales Co. v. Commissioner, 49 T.C. at 657. Those cases differ
from the instant case. Litton Bus. Sys. Inc. v. Commissioner,
supra, differs because in that case the recipient of funds
continuously repaid principal which substantially reduced the net
debt. Id. at 374-375, 380-381. In Litton Bus. Sys., we found a
reasonable expectation of repayment not present in the instant
cases. Petitioners' account balances increased throughout the
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