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validity of the debt and show that the advances were loans rather
than capital contributions. See Rule 142(a); Welch v. Helvering,
290 U.S. 111 (1933). We consider here whether petitioner’s
advances to UPE created bona fide indebtedness or whether
petitioner’s advances were contributions to capital
representative of an equity stake in UPE.
The determination of whether advances to a corporation have
created bona fide indebtedness depends on whether there is an
intention to create an unconditional obligation to repay the
advances. See Raymond v. United States, supra at 190. Because
bad debt deductions affect ordinary income and equity losses
affect capital gain income, there appears to be a preference for
bad debt deductions. There has been much litigation on this
subject, and the courts consider various factors when deciding
whether advances are debt or equity. The Court of Appeals for
the Fifth Circuit, to which this case is appealable, considers at
least 13 nonexclusive factors principally relevant in determining
whether advances to a corporation have created debt or equity.
See Estate of Mixon v. United States, 464 F.2d 394, 402 (5th Cir.
1972).4
4 The Estate of Mixon factors include: (1) The names given
to the certificates evidencing the indebtedness; (2) whether
there is a fixed maturity date; (3) the source of the payments;
(4) whether repayment is legally enforceable; (5) whether the
creditor may participate in the debtor’s management; (6) whether
the obligation is subordinate to other debts; (7) the intent of
(continued...)
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