-44-
This factor weighs toward a finding that the transfers did
not create bona fide debt.
12. Conclusion
On the basis of our review of the entire record, we find it
extremely improbable that an arm’s-length lender at the time of
the transfers would have lent unsecured, at a low rate of
interest, and for an unspecified period of time to an entity in
ALSL’s questionable financial condition. Security, adequately
stated interest, and repayment arrangements (or efforts to secure
the same) are important proofs of intent, and here such proofs
are notably lacking. Economic realities require that HEI’s
transfers be characterized as capital contributions for Federal
income tax purposes, and we so hold. Thus, we also hold that HEI
is not entitled to any bad debt deduction with respect to the
transfers.
C. Petitioners’ Claim to a Deduction for a Loss of Capital
Petitioners argue alternatively that HEI may deduct the
transfers as a loss on an abandonment of its equity interest in
ALSL. We disagree. We are unable to find in the record that HEI
had any equity interest in ALSL, let alone any such interest that
it may deduct as a loss.
HEI and its owners and advisers were experienced in many
lines of business conducted in many ways. In structuring its
involvement in the Seasons of Sarasota project, HEI chose not to
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