- 81 -
years in issue, and LIIBV continued to make advances to
petitioners despite their eroding financial conditions and their
inability to repay the advances outstanding within a reasonable
time period. See Atlanta Biltmore Hotel Corp. v. Commissioner,
349 F.2d 677, 680 (5th Cir. 1965), modifying and affg. T.C. Memo.
1963-255; Diamond Bros. Co. v. Commissioner, 322 F.2d 725, 732
(3d Cir. 1963), affg. T.C. Memo. 1962-132; American-La France-
Foamite Corp. v. Commissioner, 284 F.2d 723, 724-725 & n.3 (2d
Cir. 1960), affg. T.C. Memo. 1959-101.
In C.M. Gooch Lumber Sales Co. v. Commissioner, supra at
657-659, the parties had an arrangement which provided for
mutually offsetting business dealings, but assured repayment of
principal. We found that until June 1960 the advances were debt,
but after that date, repayment was unlikely and the advances were
equity. Id. Here, there was no assured repayment during the
years in issue.
This factor supports treating the LIIBV advances to
petitioners as equity.
E. Other Factors
1. Issuance of Debt for Cash
Petitioners contend that the fact that Transit, Tree, and
LWSI transferred cash to LIIBV instead of stock supports treating
the LIIBV advances to petitioners as debt. Petitioners cite
Commissioner v. John Kelley Co., 146 F.2d 466, 469 (7th Cir.
1944) (debentures sold to shareholders in exchange for credit of
dividends paid were not debt), revg. 1 T.C. 457 (1943), revd. 326
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