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capital. Where there is no capital, the creditor is exposed to
the risks of a shareholder, not a lender. Calumet Indus., Inc.
v. Commissioner, 95 T.C. 257, 288 (1990).
Grocers’ loans to petitioner were secured by petitioner’s
assets, whereas petitioner’s advances were exposed to the risks
of UPE’s business. We find it significant that petitioner’s and
UPE’s financial records did not show the advances as loans or
debt. In that regard, petitioner is an accrual method taxpayer,
but no interest was reflected on petitioner’s books or Federal
income tax returns with respect to the advances to UPE.
Petitioner’s accountants/return preparers testified that it would
have been appropriate to report interest income. The
accountants, however, were unaware of petitioner’s advances to
UPE. Similarly, no interest expenses from the advances were
reflected on UPE’s Federal income tax returns. When a corporate
contributor does not seek or pursue interest on its contribution,
its gain, if any, would more likely be from a share of profits
and/or increase in the value of its shareholdings. See Estate of
Mixon v. United States, supra at 409.
In the same manner as petitioner’s and UPE’s failure to book
the advances, the habitual postponement of UPE’s obligation to
repay is telling. That is especially so here, where UPE had
ample opportunity to repay petitioner from progress payments
received from Formosa. We note that approximately 93 percent of
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