-41-
Commissioner, supra at 640; Calumet Indus., Inc. v. Commissioner,
95 T.C. 257, 287 (1990).
We do not believe that a creditor dealing at arm’s length
would have made the transfers to ALSL under the terms that
petitioners allege were entered into between ALSL and HEI. In
fact, ALD discussed borrowing funds from a commercial lender;
i.e., Provident. Although Provident did not lend any funds to
ALD, the terms of the proposed financing arrangement were
different in many regards from those contained in the ALSL note.
First, Provident would have required that HEI be a co-maker of
the note. Second, Provident would have required that HEI agree
to certain financial covenants such as the maintenance of a
stated debt to equity ratio and a stated minimum net worth.
Third, Provident would have required the borrower to provide
security, collateral, and earnest money and to pay accrued
interest and principal monthly. Fourth, Provident would have
required that ALD have in the first phase of construction at
least 45 firm contracts to purchase condominium units with a
total gross sale price of at least $10.8 million and total
initial earnest money deposits of at least $1.62 million. Fifth,
Provident would have required that any earnest money from the
sales be deposited with Provident. None of these requirements,
or anything like them, was contained in the financing arrangement
between ALSL and HEI.
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