- 7 -
risk capital entirely subject to the fortunes of the corporate
venture or (2) represent a debtor-creditor relationship that
comports with economic reality. Fin Hay Realty Co. v. United
States, 398 F.2d 694, 697 (3d Cir. 1968); Litton Bus. Sys., Inc.
v. Commissioner, 61 T.C. 367, 377 (1973).
In Cerand I we identified the relevant facts and then
analyzed them in three generalized categories, each of which
included several of the 13 factors. In compliance with the Court
of Appeals’ mandate, we express in greater detail the factors
considered in reaching our decision that the advances were equity
rather than debt.
The record generally reflects that petitioner’s advances
created equity in its sister corporations. Although not a
decisive factor, no certificates evidencing indebtedness were
prepared or executed by or between petitioner and its three
sister corporations to which the advances were made. Also, the
owner, Gerald A. Cerand, was not issued shares of stock in the
three newly created corporations to which the advances were made.
With regard to petitioner’s expectation of interest and
payments, there was no fixed date or schedule for repayment of
the advances. Petitioner could look only to revenues/profits of
the three sister corporations for repayment of the advances
and/or the payment of interest. Although petitioner contends
that it had a right to enforce payment from its sister
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Next
Last modified: May 25, 2011