- 20 -
We disagree. The demand feature appears on the unsigned sample
note. This factor favors respondent.
15. Taxpayers' Intent
The taxpayer’s statement of intent is relevant if the
objective facts are ambiguous. See Estate of Mixon v. United
States, 464 F.2d at 407; Tyler v. Tomlinson, 414 F.2d at 850;
American Offshore, Inc. v. Commissioner, supra at 604. The
objective facts show that the advances were equity. Thus, this
factor does not apply.
16. Conclusion
We conclude that petitioners’ advances were equity and not
debt.3 Thus, petitioners may not deduct the advances as bad
debts under section 166 for the years in issue.
B. Whether Petitioners May Disregard Cabana Boy’s Subchapter C
Status and Deduct Their Advances
Petitioners point out that expenses for Cabana Boy and
petitioner’s medical practice were both paid from the medical
practice checking account, and that both activities were located
in petitioners’ home. Petitioners contend that they may treat
Cabana Boy as if it were an S corporation. We disagree. Cabana
Boy was a C corporation. There is no evidence that petitioners
intended Cabana Boy to elect S status. Even if they had wanted
3 In light of our conclusion, we need not decide whether
the debts were business debts or whether and when they became
worthless.
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