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tallied and the consolidation was approved by the requisite
percentage of the investor-partners in each partnership. Shortly
thereafter, the two partnerships were consolidated into a company
named AeroCentury. As a result of the consolidation, Cap Corp.
received 44,119 shares of AeroCentury stock. On January 1, 1998,
it transferred the 44,119 AeroCentury shares to petitioner in
part payment of its outstanding debts to petitioner.
During 1995, Cap Corp. and CKS began marketing to investors
JetFleet III, a third aircraft equipment leasing partnership.
From 1995 through 1997, Cap Corp. was insolvent. Crispin
dissolved Cap Corp. during 1999. Cap Corp. would have failed
long before 1999 without the advances it received from petitioner
during the period 1995 through 1997.
B. Petitioner’s 1995 and 1996 Advances to Cap Corp.
During petitioner’s taxable years ended November 30, 1996
and 1997, Cap Corp. was unable to pay its expenses from its
revenues and the revenues of Cap Group and CKS, its two wholly
owned subsidiaries. Earlier, Cap Corp. raised capital by issuing
more than $4 million of its notes to third parties. During 1996,
approximately $2.5 million of these notes remained outstanding.
Although the principal payments were not due until December 1997
or December 1998, Cap Corp. was obligated to make interest
payments. Cap Corp. also had obligations to pay its expenses and
those of its subsidiaries. Among other things, CKS (the
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