Glenn H. and Diane J. Flood - Page 13




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          (1933).  A bona fide debt is one that arises from a debtor-                 
          creditor relationship and is based upon a legally valid and                 
          enforceable obligation to pay a fixed or determinable sum of                
          money.  See sec. 1.166-1(c), Income Tax Regs.                               
               We have held that our consideration of whether a taxpayer              
          created a debt with a true expectation of repayment and with the            
          intent to enforce the repayment of that debt requires an                    
          examination of the facts and circumstances.  The following                  
          factors have been used to aid in deciding whether an advance is             
          “debt” within the meaning of section 166:  (1) The existence of a           
          promissory note or written evidence of indebtedness; (2) whether            
          and in what amount interest is charged; (3) whether there is a              
          fixed repayment schedule; (4) whether there is security or                  
          collateral for the debt; (5) whether the lender made a demand for           
          repayment; (6) whether the loan is reflected as a loan in the               
          parties’ books and records; (7) whether and in what amounts any             
          repayments have occurred; and (8) the solvency of the borrower at           
          the time the parties made the loan.  See, e.g., Mayhew v.                   
          Commissioner, T.C. Memo. 1994-310.                                          
               Considering these factors in light of the record, we                   
          conclude that petitioners have not established the existence of a           
          bona fide debt to petitioner.  Petitioners did not offer evidence           
          of a promissory note or similar type of instrument of                       
          indebtedness that would identify the advances as loans.  Although           
          petitioners reported $125 of interest income on their Form 1040             





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