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interest in 14 of 22 possible instances. Further, petitioner has
not provided any explanation as to why interest was not accrued
at a fixed rate or why the rate purportedly6 charged appears to
be below market.
The only factors in this case that are helpful to petitioner
and/or supportive of its argument are the partial repayments and
the accrual of interest. Repayment of principal and accrual or
payment of interest can be significant indicators of whether
advances are loans or equity. 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 overall setting of
this case, however, the repayments and interest accruals are
insufficient to overcome the weight of the evidence reflecting
that, in form and substance, neither petitioner nor its sister
corporations intended the advances to be loans, nor did they
treat them as loans.
Petitioner, Mr. Cerand, and the three sister corporations
did not have a creditor-debtor relationship. The repayments were
6 There has been no showing that interest was paid and/or
that there was any fixed or legal obligation for the sister
corporations to pay interest. Likewise, the sister corporations
did not file returns, and no records were offered showing how
they treated the repayments and/or whether they made charges
against their revenues for interest expense.
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