- 16 -
comakers rather than guarantors does not change our analysis.
Nigh v. Commissioner, T.C. Memo. 1990-349.
Furthermore, after Mr. Salem and Mrs. Saxon signed the notes
as comakers, the bank continued to look primarily to the
corporation for repayment. Applying the test of the Eleventh
Circuit in Selfe v. United States, supra, we conclude that,
regardless of the form of the notes, the debts in substance
continued to be loans from the bank to the corporation.
We conclude further that, under debt-equity principles, the
loans from the bank were made to SS&N, not to the shareholders,
and that the shareholders, therefore, did not lend or contribute
the loan proceeds to SS&N. The loan documentation consistently
treats the loans as loans to SS&N. The loans were to be repaid
in the normal course of events from the business revenues of
SS&N. Upon default, the loans were to be repaid from the
collateral SS&N gave to secure the loans, including any life
insurance proceeds in the event of Mr. Salem's death. See debt-
equity factors set forth in Plantation Patterns, Inc. v.
Commissioner, supra at 718. For all purposes other than the
computations of the shareholder tax basis, SS&N and its
shareholders treated the loans as having been made primarily and
directly from the bank to SS&N.
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