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individual or entity by examining objective evidence of the
taxpayer’s intentions. See, e.g., In re Uneco, Inc., supra at
1207-1208. Subjective evidence of the taxpayer’s intent will
also be considered. Id. at 1209.
The following factors, among others, are often considered:
(1) Whether a purported loan was evidenced by a written
promissory note; (2) whether interest was charged; (3) whether a
schedule for repayment and a stated maturity date were
established; (4) whether security or collateral for the purported
loan existed (and was perfected); (5) whether the purported
debtor corporation was thinly or inadequately capitalized;
(6) whether the proportion of the corporation’s debt to equity
would justify the purported loan; (7) whether repayment of the
purported loan was predicated on the success of the purported
debtor’s business; (8) whether the purported debtor had the
ability to obtain a similar loan from a bank; (9) whether the
purported creditor participated in the management of the
corporation; and (10) whether the purported loan was repaid by
the stated maturity date. Id. at 1207-1208; Clark v.
Commissioner, 18 T.C. 780, 783 (1952), affd. per curiam 205 F.2d
353 (2d Cir. 1953).
The failure of parties to produce evidence in their
possession and control may give rise to a negative inference
that, if produced, the evidence would be unfavorable to them.
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