-38-
Commissioner, supra at 631 (citing Lane v. United States, supra
at 1314); see also Stinnett’s Pontiac Serv., Inc. v.
Commissioner, supra at 638-639; Raymond v. United States,
511 F.2d at 191; Segel v. Commissioner, 89 T.C. 816, 830 (1987);
Deja Vu, Inc. v. Commissioner, T.C. Memo. 1996-234.
HEI’s transfers to ALSL were placed at the risk of ALSL’s
business. ALSL’s ability to repay these transfers depended
primarily (if not solely) on its earnings, which in turn rested
on the success of ALD and the Seasons of Sarasota project. ALSL
was unable to repay the ALSL note as ALSL had no revenue and
virtually no liquid assets.
This factor weighs toward a finding that the transfers did
not create bona fide debt.
5. Capitalization
Thin or inadequate capitalization to fund a transferee’s
obligations weighs against a finding of bona fide debt. See Roth
Steel Tube Co. v. Commissioner, supra at 630; Stinnett’s Pontiac
Serv., Inc. v. Commissioner, supra at 639.
The record indicates that ALSL was inadequately capitalized
to be, as it was, the funding vehicle for ALD and that ALSL had
no meaningful capital, apart from the transferred funds, either
before or when it received the transferred funds. While ALSL
received capital contributions totaling $250,000 from Thomas and
Stethem, that amount was small in comparison to the amount of the
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