Frederick H. Jackson III and Pamela S. Jackson - Page 19

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          the bank to make the loans, were not a sufficient condition.  For           
          the bank to deviate from its loan policy and make the loans, it             
          had to appear to the bank that the enterprise of the corporation            
          was going to be successful.  At the time the loans were made, the           
          bank believed that the corporation had the potential to make                
               Thin capitalization and the use of debt proceeds to acquire            
          essential assets are factors to be considered in the debt-equity            
          analysis.  Alone, or together, however, they are not necessarily            
          determinative that the corporation had no capacity to raise funds           
          by borrowing.  See, e.g., Fin Hay Realty Co. v. United States,              
          398 F.2d 694, 697 (3d Cir. 1968).  Neither is it necessarily true           
          that guaranteed indebtedness signifies an equity investment.                
          See, e.g., Santa Anita Consol., Inc. v. Commissioner, supra at              
          553.  By reducing the lender’s risk, the guaranty may have                  
          secured the borrower a lower rate or a longer term (or both).               
          Petitioner’s father testified that he agreed to act as guarantor:           
          “To expedite the loan and hopefully, get a little lower interest            
          rate.”  Indeed, Mr. Sunderland testified that the bank normally             
          asks principals to guarantee corporate debt.                                
               Petitioners have failed to prove that the corporation had no           
          capacity to repay the loans.  They have failed to prove that                
          there were not genuine and realistic prospects of repayment by              
          the corporation.  They have failed to prove that the bank looked            

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