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Crispin’s and Koehler’s stock ownership in Cap Corp. and
petitioner’s lack of a direct stock interest in Cap Corp. are of
less import because of Cap Corp.’s serious insolvency problems
and need for funds from Crispin and/or petitioner. At all times
relevant, little, if any, shareholder equity existed in Cap Corp.
The financial statements reflect no shareholder equity during
1996, with Cap Corp.’s liabilities exceeding assets by several
multiples. At all relevant times, Crispin effectively controlled
and directed Cap Corp. In this connection, Koehler testified
that, during 1995 and 1996, he would contact Crispin whenever Cap
Corp. lacked funds to cover its required interest payments to
third-party creditors and its other operating expenses. There is
an identity of interest between petitioner’s role as purported
creditor and Crispin’s role as Cap Corp.’s controlling
shareholder.
This factor favors respondent.
10. Payment of Interest Only Out of Dividends
This factor is essentially the same as the third factor;
i.e., source of the payments. Hardman v. United States, 827 F.2d
1409, 1414 (9th Cir. 1987). It focuses, however, on how the
parties treated interest. In that regard, “A true lender is
concerned with interest.” Am. Offshore, Inc. v. Commissioner, 97
T.C. at 605 (citing Estate of Mixon v. United States, 464 F.2d at
409). The failure to insist on interest payments may indicate
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