- 19 -
regarding the prohibited transactions, and the trial and
subsequent briefs in the case at hand, respondent has repeatedly
referred to the funds advanced to Stephanie and David as “loans”
and “debt”. Respondent has clearly had ample opportunity to take
the position that the funds were in reality gifts but waited
until the final installment of the briefing schedule. Respondent
cannot unbake the cake by springing this argument on petitioner
and the Court this late in the game.
For completeness, we shall discuss whether the Atascadero
loan was bona fide debt. Bona fide debt is debt that arises from
a debtor-creditor relationship based upon a legally valid and
enforceable obligation to pay a fixed or determinable sum of
money. See sec. 1.166-1(c), Income Tax Regs. Whether a debtor-
creditor relationship exists depends on all the facts and
circumstances, and generally no one fact is determinative. An
essential question is whether there is a good-faith intent on the
part of the recipient of the funds to make repayment, and a good-
faith intent of the person advancing the funds to enforce
repayment. In determining whether such intent exists, we
consider all the evidence, and we evaluate whether there was a
reasonable expectation of repayment in light of the economic
realities at the time the funds were advanced. See Fisher v.
Commissioner, 54 T.C 905, 909-910 (1970).
Intrafamily transfers are subject to close scrutiny and may
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011