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Section 166(a)(1), on the other hand, generally allows a
deduction for a debt that becomes worthless during a taxable
year. In the case of a corporate taxpayer, section 166(a) allows
an ordinary deduction for a worthless debt, regardless of whether
the debt is a business or nonbusiness debt. Sec. 1.166-1(a),
Income Tax Regs.; cf. sec. 166(d)(1); sec. 1.166-5(a), Income Tax
Regs.
Sections 165 and 166 are mutually exclusive. In situations
where both sections might otherwise be applicable, section 166--
the specific statute--controls over section 165--the general
statute. Spring City Foundry Co. v. Commissioner, 292 U.S. 182,
189 (1934).
The parties disagree about whether the advances by
petitioner to Cap Corp. are to be treated as equity as opposed to
debt. The Court of Appeals for the Ninth Circuit, which barring
an agreement otherwise would be the venue for appeal in this
case, has identified the following 11 factors to be considered in
making this determination: (1) The names given to the documents
evidencing the indebtedness; (2) the presence or absence of a
maturity date; (3) the source of the payments; (4) the right to
enforce the payments of principal and interest; (5) participation
in management; (6) a status equal to or inferior to that of
regular corporate creditors; (7) the intent of the parties; (8)
“thin” or adequate capitalization; (9) identity of interest
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