Claymont Investments, Inc., As Successor in Interest to New CCI, Inc. and Subsidiaries - Page 19

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          2(a)(1), Income Tax Regs., is applicable to the CIC/CIHI                    
          transaction because CIC became a creditor of CIHI and the 11.5-             
          percent interest rate was not arm’s length.  Del. Code Ann. tit.            
          6, sec. 1301(3) and (4) (2005) (a creditor is defined as a person           
          who has a right to payment).                                                
               Respondent cites section 1.482-1(d)(3)(ii)(B) and                      
          (f)(2)(ii), Income Tax Regs., as authority for restructuring the            
          transfer between CIC and CIHI as a new loan between Holdings and            
          CIHI.  Section 1.482-1(d)(3)(ii)(B), Income Tax Regs., states:              
               The contractual terms, * * * agreed to in writing * * *                
               will be respected if such terms are consistent with the                
               economic substance of the underlying transactions.  In                 
               evaluating economic substance, greatest weight will be                 
               given to the actual conduct of the parties, and the                    
               respective legal rights of the parties * * *.  If the                  
               contractual terms are inconsistent with the economic                   
               substance of the underlying transaction, the district                  
               director may disregard such terms and impute terms that                
               are consistent with the economic substance of the                      
               Respondent contends that the terms of the transaction are              
          inconsistent with the transaction’s economic substance.                     
          Respondent further contends that arm’s-length parties would not             
          have entered into this transaction because the market rate of               
          interest was 8 percent at the time of the assumption.  As a                 
          result, respondent recast the CIC/CIHI transaction as a repayment           
          by CIC to Holdings of the $49,784,881 followed by a new loan from           
          Holdings to CIHI at an 8-percent interest rate.  Respondent                 
          further asserts that the excess 3.5 percent interest paid to                

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