- 33 -
advances were made, petitioner knew there was very little, if
any, possibility that the advances would ever be repaid.20
d. The Right To Enforce Repayment
A right to enforce the repayment of amounts advanced to
another, which is conferred on the entity making the advances, is
indicative of bona fide debt. Estate of Mixon v. United States,
supra at 405; Am. Offshore, Inc. v. Commissioner, 97 T.C. at 603.
Petitioner failed to introduce any evidence regarding the
operation of the intercompany account in FYE May 31, 1991,21 and
thereafter or the terms applicable to any account balance, other
than with respect to interest. Because petitioner bears the
burden of proof, petitioner’s failure to introduce evidence
regarding this factor weighs against petitioner’s position.
e. Increase in Management Participation
If a creditor receives a right to participate in the
management of a business in consideration for an advance to the
business, such participation tends to demonstrate that the
advance was not a bona fide debt but rather was an equity
investment. Am. Offshore, Inc. v. Commissioner, supra at 603.
20Even the advances made during FYE May 31, 1991, were made
at a time when G�nther had suffered a downturn in its business,
and repayment was dependent on earnings.
21The intercompany account balance owed by G�nther as of May
31, 1992, consisted, in part, of amounts advanced during FYE May
31, 1991. Unless otherwise noted, our analysis covers advances
in FYE May 31, 1991, as well as those in later years.
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