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was repaid, it appears that the repayment came from the funds
transferred by James to Quotum’s Nordbanken account.
In the face of competing documentation and on these facts,
we conclude that James advanced the funds in exchange for an
ownership interest in Quotum and a management position with the
corporation. Consideration of the relevant factors leads us
inescapably to the conclusion that James made a capital
contribution to Quotum. As to Christopher, the record
establishes only that Christopher gave $150,000 to James to
invest in the quest to acquire Russian airplanes. Petitioners
have failed to prove that they lent funds to Quotum or to Brian
Wilcox and Michael Donnelly or that a true debtor-creditor
relationship was ever established.
Even If a Debt Was Created, Was It a Business Bad Debt?
Even if we found that a bona fide debt was created, the debt
was not created in proximate relation to a trade or business of
petitioners. As we concluded earlier in this opinion, the trade
or business in question, if there was one, was Quotum’s, not
petitioners’. “When the only return is that of an investor, the
taxpayer has not satisfied his burden of demonstrating that he is
engaged in a trade or business”. Whipple v. Commissioner, 373
U.S. at 202.
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