- 15 -
financial condition or the potential success of the Corbin
project. See Dixie Dairies Corp. v. Commissioner, supra at 495;
Gooding Amusement Co. v. Commissioner, supra at 418-419.6
Petitioner’s right to demand repayment of the advance was
limited from its inception. Petitioner did not intend to demand
repayment of the $200,000 advance unless and until the Corbin
project was successful. This factor favors respondent’s
position.
5. Participation and Management
If petitioner received a right to participate in the
management of the Corbin project in consideration for the
advance, such participation tends to demonstrate that the advance
was not bona fide indebtedness but rather was an equity
investment. See American Offshore, Inc. v. Commissioner, 97 T.C.
at 603.
Prior to the Corbin project, petitioner and Mr. Magness did
not have a continuous business relationship; petitioner had
retained Mr. Magness approximately four times over the past 20
years to perform framing or construction services. As a
condition for advancing the money, petitioner insisted he be
retained as a consultant on the Corbin project because he “wanted
6In addition, the promissory note was not protected by an
acceleration clause or sinking fund in the event of default. See
A.R. Lantz Co. v. United States, 424 F.2d 1330, 1334 (9th Cir.
1970).
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011