- 15 - B. Debt-Equity Analysis Clearly, the loan agreement and the note, both in form and substance, constitute debt and not equity. The question here is not whether the bank was a lender, which it surely was, but to whom did it lend approximately $2 million, the corporation or the guarantors. Apparently, petitioners wish us to consider certain of the debt-equity factors (e.g., the adequacy of capitalization of the corporation) to determine that, but for the guaranty, the bank would not, on any terms, have made the loans to the corporation. Because the bank undoubtedly lent almost $2 million to someone, petitioner would use the hoped for results of our debt-equity analysis to convince us that the loan must have been to the guarantors, the only other possibility in sight. Petitioners’ argument is not illogical. Nevertheless, courts, including this Court and the Court of Appeals for the Eleventh Circuit (to which any appeal of our decision likely would lie), have been hesitant to substitute the guarantor for the nominal borrower as the borrower-in-substance. Indeed, this Court has stated: “We decline to apply the debt-equity analysis used in Plantation Patterns to the guaranty of a loan to a subchapter S corporation.” Estate of Leavitt v. Commissioner, 90 T.C. 206, 216 (1988), affd. 875 F.2d 420 (4th Cir. 1989).Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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