- 17 - furtherance of his trade or business of lending money, in order to make Gandy’s profitable so as to help his investment banking business prosper. The objective facts in the record, however, do not support the conclusion that these advances were made in a manner consistent with normal lending practices or consistent with petitioner’s own practices in making loans to other, unrelated borrowers. Although petitioner testified that he intended the advances to be repaid, the record does not reveal that he made any efforts to collect principal or interest on the advances over a period of 2 to 3 years. Petitioner was aware of Gandy’s perilous financial situation when he first made the advances in issue and could not realistically have expected to be repaid, especially in light of Gandy’s delinquency on the Gandy’s bonds, to which his advances were subordinated. He acknowledged that he made the 1990 advances on an unsecured basis at a time when Gandy’s needed the advances to operate. He made three further unsecured advances in 1993, without having received or requested repayment of the overdue 1990 advances, and in two instances without receiving any kind of debt instrument. This factor weighs toward equity. 8. Thin or Adequate Capitalization Advances to corporations are generally indicative of equity where the corporation is thinly capitalized (i.e., has a high ratio of debt to equity). See Stinnett’s Pontiac Serv., Inc. v.Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Next
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