- 8 -
Commissioner, T.C. Memo. 1995-364, affd. without published
opinion 113 F.3d 1241 (9th Cir. 1997).
A bona fide debt is a debt which “arises from a debtor-
creditor relationship based upon a valid and enforceable
obligation to pay a fixed or determinable sum of money.” Sec.
1.166-1(c), Income Tax Regs.; see Dixie Dairies Corp. v.
Commissioner, supra at 494. The existence of a bona fide debtor-
creditor relationship may be determined by examination of all
relevant facts. Fisher v. Commissioner, 54 T.C. 905, 909 (1970).
In deciding whether a bona fide debt existed, we may
consider a number of factors, including: (1) Whether evidence of
indebtedness exists, such as a note; (2) whether any collateral
or security is requested; (3) whether a demand for repayment has
been made; (4) whether the parties’ records reflect the
transaction as a loan; (5) whether any repayments have been made;
and (6) whether any interest was charged. See Kim v.
Commissioner, supra; see also Dixie Dairies Corp. v.
Commissioner, supra; Baker Commodities, Inc. v. Commissioner, 48
T.C. 374 (1967), affd. 415 F.2d 519 (9th Cir. 1969); Bragg v.
Commissioner, T.C. Memo. 1993-479. However, “Formal indicia of
debt are not in themselves sufficient to establish a bona fide
indebtedness”. Hotel Continental, Inc. v. Commissioner, supra.
The alleged debt transaction requires close scrutiny to
determine whether the parties were engaged in an arm’s-length
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011