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involvement in the manufacture of vending machines. Conversely,
respondent contends that the securing of future business was not
the dominant motive. Respondent argues that the potential for
profit from the appreciation of Snack share holdings was the
dominant motive for K&H advancing funds to Snacks.5 To some
extent, we have tangentially addressed this question by holding
that K&H’s advances to Snacks were debt (loans) rather than
equity. In addressing the debt versus equity question, we have
already decided that the advances were not equity and were not
investment motivated.
Petitioner, who earned substantial salaries from K&H,
realized that competition had forced his company to seek out
additional business and provide incentives for potential or
existing customers. One of the ways that K&H accomplished this
was to either advance money to or lessen the financial burden of
customers. Leading up to and during the years in issue, K&H lent
funds, purchased inventory and provided float for customers, and
built manufacturing facilities to address customers’ needs. The
transaction with Snacks fit within that pattern of K&H’s business
activity. There was business potential and reasonable
expectation of profit for K&H in its relationship with Snacks.
5 We note that neither party makes distinctions between
petitioner and his wholly owned S corporation. For example,
respondent connects petitioner’s share ownership with his S
corporation’s advances.
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