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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
interest,
(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):
(continued...)
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