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Extent to Which Funds Were Used To Acquire Capital Assets
The record is unclear as to exactly for what purpose the
debenture funds received by petitioner were used. A substantial
portion of the debenture funds appears to have been used to
acquire capital assets.
Proportionality of Interest
Funds received from shareholders in proportion to their
respective stock ownership interests may indicate equity
investments. Am. Offshore, Inc. v. Commissioner, supra at 604
(citing Estate of Mixon v. United States, supra at 409).
Each of petitioner’s debenture holders was either a
shareholder of petitioner or was related to a shareholder of
petitioner. The debenture funds were transferred to petitioner
by the debenture holders, not in exact proportion, but in
comparable proportion to the respective stock interests of the
debenture holders.
Risk
Petitioner’s obligation to repay the debenture funds was
unconditional. Payments of principal and designated interest on
the debenture notes were not dependent upon profits of
petitioner, nor were payments excused or forgiven in the event
petitioner sustained losses. Respondent argues that because the
debenture notes were unsecured and subordinated to the secured
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