- 9 -
F.2d 694, 697 (3d Cir. 1968). Our analysis of the factors is set
forth below.
1. Certificates Evidencing Indebtedness
The outward form of the transaction is not controlling. See
Bauer v. Commissioner, supra at 1367-1368. The Court of Appeals
for the Ninth Circuit has stated:
Although the inquiry of a court in resolving the
debt-equity issue is primarily directed at ascertaining
the intent of the parties * * * a distinction must be
made between objective and subjective expressions of
intent. An objective expression of intent, as
contained in the documentation of an advance of money,
is generally not to be afforded special weight. It
alone cannot be controlling of the debt-equity issue.
* * * [A.R. Lantz Co. v. United States, supra at
1333.]
Where the form of the advance does not correspond to the
intrinsic economic nature of the transaction, labels are not an
accurate expression of the subjective intention of parties to a
transaction and lose their meaning. See Fin Hay Realty Co. v.
United States, supra at 697 (advances were contributions to
capital where "all the formal indicia of an obligation were
meticulously made to appear" and shareholders had "power to
create whatever appearance would be of tax benefit to them
despite the economic reality of the transaction").
In this case, there were several discrepancies between the
terms of the documents and the oral agreement between petitioner
and Mr. Magness. For example, according to the Contract, the
$40,000 yearly salary for consulting was due and payable on
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011