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Roth Steel Tube Co. v. Commissioner, 800 F.2d 625, 630 (6th Cir.
1986), affg. T.C. Memo. 1985-58. In determining the economic
reality of a related party transfer, “‘the ultimate issue is
* * * whether the transaction would have taken the same form had
it been between the corporation and an outside lender’”. Fed.
Express Corp. v. United States, 645 F. Supp. 1281, 1290 (W.D.
Tenn. 1986) (quoting Scriptomatic, Inc. v. United States, 555
F.2d 364 (3d Cir. 1977)). The more a transfer appears to result
from an arm’s-length transaction, the more likely the transfer
will be considered debt. Bayer Corp. v. Mascotech, Inc., 269
F.3d 726, 750 (6th Cir. 2001).
In distinguishing between debt and equity, courts also
analyze whether the contemporaneous facts establish an
unconditional obligation to repay. Roth Steel Tube Co. v.
Commissioner, supra at 630; Smith v. Commissioner, supra at 180;
see Burrill v. Commissioner, supra at 669. In Roth Steel, the
Court of Appeals for the Sixth Circuit used an 11-factor test to
determine whether the transfer was debt or equity.4 No factor is
4 The 11 factors are: (1) Identity of interest between
creditor and stockholder, (2) adequacy or inadequacy of
capitalization, (3) source of payments, (4) name given
instruments evidencing indebtedness, (5) presence or absence of
fixed maturity date and schedule of payments, (6) presence or
absence of a fixed rate of interest and interest payments, (7)
presence or absence of security, (8) inability to obtain outside
financing, (9) subordination of transfers, (10) presence or
absence of a sinking fund, and (11) extent to which the transfers
were used to acquire capital assets. Roth Steel Tube Co. v.
(continued...)
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