Gerald L. and Erma L. Dunnegan - Page 9

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          697 (3d Cir. 1968).  No single factor is controlling.  Dixie                
          Dairies Corp. v. Commissioner, supra at 493.                                
               Petitioners argue that all of the funds that petitioners               
          transferred to Auto Plaza constituted bona fide business loans              
          that became worthless and therefore the bad debts qualify for a             
          business bad debt deduction under section 166.  Respondent argues           
          that petitioners’ transfers of funds to Auto Plaza should be                
          treated as capital contributions and, thus, petitioners should              
          not be allowed to claim a bad debt deduction under section 166.             
               When petitioners made the transfers to Auto Plaza, no loan             
          agreements or promissory notes were drafted or executed.  The               
          absence of notes or other instruments favors respondent.  See               
          Calumet Indus., Inc. v. Commissioner, supra at 286.                         
               Petitioners argue that the transfers were recorded as “loans           
          from shareholders” on the corporation’s books and records.                  
          Transfers to closely held corporations by controlling                       
          shareholders are subject to heightened scrutiny, and labels                 
          attached to such transfers by the controlling shareholders                  
          through bookkeeping entries or testimony have limited                       
          significance unless these labels are supported by objective                 
          evidence.  Fin Hay Realty Co. v. United States, supra at 697;               
          Dixie Dairies Corp. v. Commissioner, supra at 495.  Here,                   
          petitioners were the majority shareholders of the corporation               

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