August V. and Mary E. Klaue - Page 11




                                       - 11 -                                         

          were not the same as those of the taxpayers in the above cases.             
          Accordingly, to the extent that we determine the advances in                
          these cases were loans, we do not find that the obligation to               
          repay was contingent upon the success of the Theratech device.              
          Instead we find that the obligation to repay the advances was               
          fixed; however, there was a sizable risk that Estes could not               
          repay the advances unless the device became a financial success.            
          Bona Fide Debt                                                              
               A determination that the obligation to repay is not                    
          contingent on some future event does not necessarily mean that              
          the loans are bona fide debts for purposes of section 166.  It              
          must also be established by petitioners that the loans were made            
          with a reasonable expectation, belief, and intention that they              
          would be repaid.  The determination of whether a transfer was               
          made with a real expectation of repayment and an intention to               
          enforce the debt depends on all the facts and circumstances                 
          including whether:  (1) There was a promissory note or other                
          evidence of indebtedness; (2) there is any written loan                     
          agreement; (3) interest was charged; (4) there was security or              
          collateral, (5) there was a fixed maturity date; (6) a demand for           
          repayment was made; (7) any actual repayment was made; (8) the              
          transferee had the ability to repay; and (9) the parties'                   
          records, if any, reflect the transaction as a loan.  See John               







Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  Next

Last modified: May 25, 2011