- 163 -
partnership. Furthermore, the advances were
disproportionate to EPIC's interest in the partnership.
Certain other factors do not clearly indicate that the
advances were either debt or equity. For example, EPIC
did not receive increased management control over either
partnership by reason of the advances, but, as general
partner, EPIC already exercised full management control of
both partnerships. Similarly, it appears that the advances
were used for all partnership needs.
We believe that the weight of the evidence tips in
favor of finding that the subject unsecured advances are
equity when we consider the intent of the parties. In our
view, EPIC's management placed these funds at the risk of
the business and had no reasonable expectation of repayment
without regard to the success of all of the partnerships.
As discussed above, EPIC's management anticipated that EA
83-XII and EA 84-III would have surplus cash during their
early lives but that each partnership eventually would
incur operating deficits and would need to receive advances
from EPIC in order to avoid defaults.
Other than the sale of a partnership's properties, a
partnership had only four sources of cash to fund these
operating deficits: Capital contributions by the limited
partners, partnership income consisting primarily of rental
Page: Previous 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 NextLast modified: May 25, 2011