Indmar Products Co., Inc. - Page 12

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          Thus, the transactions between petitioner and the Rowes did not             
          take the same form as transactions between unrelated parties.               
          IV. The Roth Steel Test                                                     
               In addition to the transfers not being arm’s-length                    
          transactions, the 11-factor test set forth in Roth Steel Tube Co.           
          v. Commissioner, 800 F.2d 625 (6th Cir. 1986), establishes that             
          the transfers were equity.  First, petitioner did not pay any               
          formal dividends.  Jaques v. Commissioner, 935 F.2d 104, 106 (6th           
          Cir. 1991), affg. T.C. Memo. 1989-673.  Second, pursuant to 12              
          consecutive years of waivers, there was no fixed maturity date or           
          fixed obligation to repay.  Roth Steel Tube Co. v. Commissioner,            
          supra at 631; Jaques v. Commissioner, supra at 108 (stating that            
          a taxpayer’s failing to repay debt within a reasonable time and             
          making “sporadic” principal payments are factors that weigh in              
          favor of equity).  Third, Mr. Rowe testified that petitioner was            
          expected to make a profit and that repayment “has to come from              
          corporate profits or else the company couldn’t pay for it.”  Roth           
          Steel Tube Co. v. Commissioner, supra at 631 (stating “An                   
          expectation of repayment solely from corporate earnings is not              
          indicative of bona fide debt regardless of its reasonableness.”             
          (citing Lane v. United States, 742 F.2d 1311, 1314 (11th Cir.               
          1984))).  Fourth, the transfers were unsecured.  Roth Steel Tube            
          Co. v. Commissioner, supra at 631.  Finally, petitioner never               
          established a sinking fund.  Id. at 632.  These factors certainly           

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