Victor I. Rosenberg and Deborah I. Rosenberg - Page 17




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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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