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Corp. v. Commissioner, 74 T.C. 476, 493-494 (1980); Cerand & Co.
v. Commissioner, T.C. Memo. 1998-423; see also Estate of Mixon v.
United States, 464 F.2d 394, 398 n.1 (5th Cir. 1972); A.R. Lantz
Co. v. United States, 424 F.2d 1330 (9th Cir. 1970).
The facts and circumstances of each case must be considered,
and no single factor is considered determinative. See John Kelly
Co. v. Commissioner, 326 U.S. 521, 530 (1946). Ultimately, we
must decide whether K&H intended to create a debt with a
reasonable expectation of repayment and whether those aspects
comported with economic reality. See Cerand & Co. v.
Commissioner, supra. There can be no doubt that the form in
which the advances were cast was debt and not equity. There is
also no doubt that the parties treated the advances as debt.
Each advance was memorialized by a promissory note, bearing a
fixed rate of interest, and due 1 year from its execution. In
addition, each of the parties to the notes recorded the
accumulated balances as debts or loans on books and records and
financial statements. It is also clear that, for tax purposes,
each party consistently reported the advances as debt, and K&H
reported interest income attributable to the notes.
In the face of petitioner’s strong position on the form of
the transactions, respondent contends that, in substance, the
advances were equity in nature. In support of this contention,
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