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Petitioners contend that Cabana Boy borrowed $2.2 million
from Crossland Mortgage Corp. We disagree. That loan was to
petitioners.
Petitioners point out that Cabana Boy borrowed $50,000 from
Harris. However, the terms of that loan differ from the terms of
the advances because Cabana Boy had three coborrowers and Harris
wanted to be paid a high interest rate and also receive a
percentage of the profits from the movie. This factor favors
respondent.
9. Use of Funds
Using cash advances to finance initial business operations
such as daily operating expenses may suggest that the advances
were equity. See Slappey Drive Ind. Park v. United States, supra
at 583; Plantation Patterns, Inc. v. Commissioner, 462 F.2d 712,
722 (5th Cir. 1972). Cabana Boy used $100,000 of the advances to
acquire the rights to Neuromancer. Cabana Boy used the remainder
of the funds at issue to pay for all of its operations including
daily expenses. This factor favors respondent.
10. Source of Repayments
Advances are more likely to be equity if the only source of
funds for repayment is corporate earnings. See Electronic
Modules Corp. v. United States, supra at 1372; Estate of Mixon v.
United States, supra at 405. Petitioners contend that Cabana Boy
did not need corporate earnings to repay the advances because it
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