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Ultimately, the issue for our consideration is whether
petitioner and UPE intended to create indebtedness with a
reasonable expectation of repayment and whether those aspects
comported with economic reality. See Estate of Mixon v. United
States, supra at 407. Generally, shareholders place their money
at the risk of the business while lenders seek a more reliable
return. See Midland Distribs., Inc. v. United States, 481 F.2d
730, 733 (5th Cir. 1973). In the setting of this case, it
appears that petitioner either advanced capital to UPE at
Stewart’s direction and/or that petitioner was a conduit for
UPE’s loans from Grocers. UPE did not have sufficient capital
assets to satisfy the security requirements of Grocers. In that
regard, Grocers was a true lender, and it sought to profit from
interest income and required security to protect its loan
principal. Petitioner’s actions here do not reflect an intent to
lend for profit. Petitioner’s advances to UPE exposed it to the
risks of UPE’s business. In essence, petitioner was Stewart’s
instrumentality for equity investment in UPE.
Petitioner contends that its advances to UPE were
commercially reasonable arm’s-length transactions. However,
petitioner has failed to support this contention. In an arm’s-
length debtor-creditor relationship, a creditor expects to be
repaid whether the debtor does well or poorly at his business.
If the debtor does poorly, the creditor expects to be repaid from
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