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two ways. First, petitioner caused G�nther to distribute the net
proceeds from the Actium transaction as part payment to the banks
and trade creditors to whom G�nther was liable, but no part of
the proceeds was used to repay the intercompany account balance.
Second, when petitioner waived portions of G�nther’s intercompany
account balance, it effectively subordinated the intercompany
account balance to other creditors.
Subordination of the advances strongly indicates equity.
This factor favors respondent’s position.
g. Intent of the Parties
“[T]he inquiry of a court in resolving the debt-equity issue
is primarily directed at ascertaining the intent of the parties”.
A.R. Lantz Co. v. United States, 424 F.2d 1330, 1333 (9th Cir.
1970) (citing Taft v. Commissioner, 314 F.2d 620 (9th Cir. 1963),
affg. in part and revg. in part T.C. Memo. 1961-230). Before the
waivers of portions of the intercompany account balance owed to
petitioner by G�nther, both companies treated the intercompany
account balance as debt in that the outstanding account balance
accrued interest. The intercompany account balance was recorded
as an account payable by G�nther and an account receivable by
petitioner on their respective financial statements.
Although petitioner treated the intercompany account balance
as debt on its books and records and referred to the account
balance as a debt owed to it by G�nther, it is obvious that
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