Edwin A. Helwig - Page 13

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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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