Frederick H. Jackson III and Pamela S. Jackson - Page 12

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          purposes as stock (equity) or indebtedness.  Because the Internal           
          Revenue Code contains no controlling definitions, that                      
          determination generally is made with reference to various factors           
          that indicate the economic substance of a transaction.  See,                
          e.g., section 385(b), which sets forth five factors that may be             
          included in any regulations prescribed by the Secretary to                  
          determine, with respect to a particular factual situation,                  
          whether a debtor-creditor relationship exists or a corporation-             
          shareholder relationship exits.3  See also Selfe v. United                  
          States, supra at 773, setting forth the 13 factors that the Court           
          of Appeals for the Eleventh Circuit applies to characterize a               
          taxpayer’s interest in a corporation4.  Petitioners ask us to               

               3  Those factors are:                                                  
               (1) whether there is a written unconditional promise                   
               to pay on demand or on a specified date a sum certain                  
               in money in return for an adequate consideration in                    
               money or money’s worth, and to pay a fixed rate of                     
               (2) whether there is subordination to or preference                    
               over any indebtedness of the corporation,                              
               (3) the ratio of debt to equity of the corporation,                    
               (4) whether there is convertibility into the stock of                  
               the corporation, and                                                   
               (5) the relationship between holdings of stock in the                  
               corporation and holdings of the interest in question.                  
               4  The following are the 13 factors set forth by the Court             
          of Appeals in Selfe v. United States, 778 F.2d 769, 773 n.9 (11th           
          Cir. 1985):                                                                 

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