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Mr. Tedford knew the extent of Border’s financial problems and
knew that transferring funds to Border was risky. Knowing all
this, petitioner and Mr. Tedford still chose to make the
transfers. Although the transfers were treated as debt in
Border’s records, on the basis of the other factors, we do not
believe petitioner and Mr. Tedford intended, or could have
reasonably intended, the transfers to be bona fide debt.
This factor favors respondent’s position.
H. “Thin” or Adequate Capitalization
A monetary transfer to a corporation appears to be a capital
contribution if the corporation is thinly capitalized. Am.
Offshore, Inc. v. Commissioner, supra at 604.
At trial Mr. Edge testified as to valuation of Border’s
assets. Mr. Edge is not a certified appraiser, nor was he
designated as an expert witness on construction equipment or
auctions; therefore, we disregard his testimony as to the
valuation of Border’s assets.
There is evidence in the record from which an inference can
be drawn that Border’s capitalization was inadequate, such as
petitioner and Mr. Tedford’s continuous transfers of cash and
Border’s inability to get loans from outside creditors.
Therefore, this factor favors respondent’s position.
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