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The evidence does not support petitioners’ claim that they
expected to be repaid.
5. Participation in Management as a Result of the Advances
Normally, acquisition of management responsibilities by the
party advancing funds is more likely to be evidence of an equity
relationship. See Stinnett’s Pontiac Serv., Inc. v.
Commissioner, supra at 639. Here, however, Mr. Shedd was already
the managing shareholder of J&J and TLC, and so this factor is
neutralized in this case.
6. The Status of the Advances in Relation to Regular Corporate
Creditors
Subordination of advances to claims of other creditors
indicates that the advances were capital contributions and not
loans. See id. There is insufficient evidence to judge the
weight of this factor.
7. The Ratio of Debt to Capital of the Corporation
Thin or inadequate capitalization is strong evidence that
the advances are capital contributions rather than loans. See
Stinnett’s Pontiac Serv., Inc. v. Commissioner, supra at 639;
Estate of Mixon v. Commissioner, supra at 408. Here, Mr. Shedd
testified that TLC received $500 of initial capitalization and no
further contributions were received from the Shedds. Comparing
capital of $500 with over $90,000 in advances, it appears that
the advances were more likely capital in nature.
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