Edwin A. Helwig - Page 9

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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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