Frederick H. Jackson III and Pamela S. Jackson - Page 15

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               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).                   

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