Edwin A. Helwig - Page 8

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          $649,000 ordinary loss deduction claimed by petitioner for 1993              
          was not allowable.                                                           
               For its 1990, 1991, 1992, and 1993 fiscal years, K&H paid               
          interest on indebtedness incurred to purchase a yacht in the                 
          amounts of $20,659, $20,280, $17,515, and $11,950, respectively.             
               The principal and threshold question for our consideration              
          is whether the advances from K&H to Snacks were debt or equity,              
          thereby determining the proper deduction, if any, allowed to                 
          petitioner as sole shareholder of K&H, a pass-thru entity.  If we            
          find that the advances are debt, we must consider whether the                
          debt was business debt and became worthless as claimed.  In the              
          setting of this case, the answer to the debt versus equity                   
          question will decide whether the claimed losses are ordinary or              
          capital, if allowable.  Some of the factors that we consider here            
          in deciding whether advances are debt or equity include:  The                
          existence of debt instruments; the parties’ intent and their                 
          representations of the advances; the existence of fixed maturity             
          dates; rights to enforce payment; whether the advances enhanced              
          participation in the debtor’s management; the status of the                  
          advances relative to other creditors; whether the borrowing                  
          entity is thinly capitalized; repayment activity; and the type of            
          expenditures made with the advances.  See, e.g., Dixie Dairies               

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