- 104 -
of $1.257 million during 1997. Cap Corp. also owed approximately
$2.5 million on outstanding notes issued to third-party
creditors. With respect to the $2.5 million, Cap Corp. was
obligated to make interest payments and pay off the note
principal during December 1997 or December 1998. See Cuyuna
Realty Co. v. Commissioner, 382 F.2d at 302 (noting that although
the taxpayer-parent’s later concession that some of its purported
loans to its subsidiary were equity might significantly improve
the debt-to-equity ratio of its subsidiary, the subsidiary still
would lack a sufficient earnings base to carry the remaining
outstanding indebtedness).
This factor favors respondent.
9. Identity of Interest
Advances made by a sole shareholder are more likely to be
committed to the risk of the business than are advances made by
creditors who are not shareholders. Ga. Pac. Corp. v.
Commissioner, 63 T.C. 790, 797 (1975). The sole shareholder is
also less likely to be concerned than a third party would be with
the safeguards normally used to protect such advances. Id.
At all times relevant, Crispin and Koehler were Cap Corp.’s
only shareholders. Petitioner itself held no formal stock
interest in Cap Corp. However, Crispin was CMA’s 98-percent
shareholder and ultimate decision maker.
Page: Previous 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 NextLast modified: May 25, 2011