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1997 would be used to pay Cap Corp.’s third-party creditors, and
(3) it was highly unlikely that Cap Corp. would be able to repay
petitioner by the November 30, 1997, maturity date.
This factor favors respondent.
7. Intent of the Parties
“[T]he inquiry of a court in resolving the debt-equity issue
is primarily directed at ascertaining the intent of the parties”.
A.R. Lantz Co. v. United States, 424 F.2d at 1333 (citing Taft v.
Commissioner, 314 F.2d 620 (9th Cir. 1963), affg. in part and
revg. in part T.C. Memo. 1961-230). The objective and subjective
expressions of intent, as well as the other 10 enumerated
factors, must be examined. Id. at 1333-1334. The resolution of
a debt versus equity question involves consideration of the
substance and reality and not merely the form. Form used as a
subterfuge to shield the real essence of a transaction should not
control. Id. at 1334.
Cap Corp. and petitioner treated the advances in controversy
as debt in that Cap Corp. issued petitioner the January 1, 1995,
and December 1, 1996, promissory notes documenting the advances
and accrued interest. The advances were recorded as debt by Cap
Corp. and assets by petitioner on their respective financial
statements.
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