-37-
interest stated in the ALSL note. A transferor of funds who does
not insist on reasonable interest payments as to the use of the
funds may not be a bona fide lender. See Stinnett’s Pontiac
Serv., Inc. v. Commissioner, supra at 640.
ALSL never paid any interest to HEI as to the transferred
funds and made but a single, nominal payment as to the principal
of those funds. Petitioners assert that payments were not made
because neither principal nor interest was ever due under the
terms of the ALSL note. We consider this assertion unavailing.
Indeed, HEI did not even report that accrued interest was owing
on the ALSL note until more than 18 months after the first
transfer of funds.
This factor weighs toward a finding that the transfers did
not create bona fide debt.
4. Source of Repayment
Repayment that depends solely upon the success of the
transferee’s business weighs against a finding of bona fide debt.
Repayment that does not depend on earnings weighs toward a
finding of debt. See Bayer Corp. v. Mascotech, Inc. (In re
Autostyle Plastics, Inc.), supra at 751; Roth Steel Tube Co. v.
Commissioner 800 F.2d at 632; Lane v. United States, 742 F.2d
1311, 1314 (11th Cir. 1984). “An expectation of repayment solely
from * * * earnings is not indicative of bona fide debt
regardless of its reasonableness.” Roth Steel Tube Co. v.
Page: Previous 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 NextLast modified: May 25, 2011