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existed. It is clear that Mr. Magness viewed his obligation to
repay petitioner as a conditional obligation dependent solely on
the success of the Corbin project. Mr. Magness was asked at
trial, “Are you going to repay Mr. Provost the $200,000 loan?”
Mr. Magness responded; “No.”
The relevant facts and circumstances support a conclusion
that petitioner and Mr. Magness did not intend to create a
debtor-creditor relationship. This factor favors respondent’s
position.
8. “Thin” or Adequate Capitalization
Thin capitalization is strong evidence of a capital
contribution where: (1) The debt-to-equity ratio was initially
high; (2) the parties realized that it would likely go higher;
and (3) substantial portions of these funds were used for the
purchase of capital assets and for meeting expenses needed to
commence operations. See American Offshore, Inc. v.
Commissioner, supra at 604 (citing United States v. Henderson,
375 F.2d 36, 40 (5th Cir. 1967)). We give this factor no weight,
however, because the parties did not argue that the evidence
directly supported or negated this factor, and the record does
not contain sufficient evidence to make our own analysis.
9. Identity of Interest Between Creditor and Stockholder
This factor generally compares the equity ownership of
stockholders with their position as creditors in order to
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