Delta Plastics, Inc. - Page 10




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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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Last modified: May 25, 2011