- 19 - determine whether there is an identity of interest between the two positions. See American Offshore, Inc. v. Commissioner, supra at 604-605. If stockholders’ advances to a corporation are in substantially the same proportion as their equity ownership in the corporation, it tends to demonstrate that the advances are more in the nature of equity. See Estate of Mixon v. United States, supra at 409. “On the other hand, a sharply disproportionate ratio between a stockholder’s percentage stockholdings and debt is strongly indicative” that the alleged debt is bona fide. American Offshore, Inc. v. Commissioner, 97 T.C. at 604. In this case, Mr. Magness undertook the Corbin project ostensibly as a sole proprietor. When petitioner advanced the funds to Mr. Magness, petitioner had no existing ownership interest in the project. Although we view the involvement of petitioner in the Corbin project as being more in the nature of a joint venture, the identity of interest usually examined by this factor simply does not exist in this case. Consequently, we do not rely upon or apply this factor in making our analysis. 10. Payment of Interest Only From Profits “This factor is essentially the same as the third factor, ‘the source of the payments.’” Hardman v. United States, 827 F.2d 1409, 1414 (9th Cir. 1987). It focuses, however, on how the parties to the alleged debt treated interest. As we have stated,Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Next
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