Delta Plastics, Inc. - Page 9




                                        - 9 -                                         
          creditor relationship.  Litton Bus. Sys., Inc. v. Commissioner,             
          61 T.C. 367, 377 (1973).                                                    
               Of the 10 factors recognized and considered in In re Uneco,            
          supra, by the Court of Appeals for the Eighth Circuit (the Court            
          to which an appeal of this case lies), we discuss and apply below           
          those factors that are relevant to the facts of this case.3                 

          Thin or Adequate Capitalization                                             
               No specific ratio of debt to equity is determinative as to             
          whether a corporation is adequately capitalized.  2554-58 Creston           
          Corp. v. Commissioner, 40 T.C. 932, 937 n.3 (1963).                         
               In spite of petitioner’s initial debt-to-equity ratio of               
          26:1, prior to startup of petitioner, petitioner’s officers and             
          directors understood petitioner’s business and the plastics                 
          manufacturing industry and reasonably projected that petitioner             
          would be successful.  As a result of revenues quickly generated             
          by its operations, petitioner’s debt-to-equity ratio was reduced            
          in just over 3 years to 4:1.  This reduction indicates to us, in            
          this case, that petitioner was adequately capitalized from its              
          inception.                                                                  




               3  We omit a discussion of whether a sinking fund was                  
          established to retire the debenture notes.  This factor was not             
          addressed by either party.  Our discussion of the risk factor               
          involves a number of the In re Uneco, Inc., 532 F.2d 1204 (8th              
          Cir. 1976), factors.                                                        





Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  Next

Last modified: May 25, 2011