- 83 -
suggests that the advances were not equity, citing Rev. Rul. 83-
98, 1983-2 C.B. 40; Notice 94-47, 1994-1 C.B. 357; Notice 94-48,
1994-1 C.B. 357. This factor is not significant because LTL
owned and controlled petitioners and LIIBV. LTL had the power to
cause LIIBV to convert advances to petitioners to stock.
This factor is neutral.
F. Conclusion
The factors that relate to the form of the transaction
support treating the LIIBV advances to petitioners as debt. The
factors relating to substance support treating the LIIBV advances
to petitioners as equity. The substance of the transactions is
revealed in the lack of arm's-length dealing between LIIBV and
petitioners, the circular flow of funds, and the conduct of the
parties by changing the terms of the agreements when needed to
avoid deadlines. The Laidlaw entities' core management group
designed and implemented this elaborate system to create the
appearance that petitioners were paying interest, while in
substance they were not.
We conclude that, for Federal income tax purposes, the
advances from LIIBV to petitioners for which petitioners claim to
have paid the interest at issue are equity and not debt. Thus,
petitioners may not deduct the interest at issue for 1986, 1987,
and 1988.
Page: Previous 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 NextLast modified: May 25, 2011