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obligation (i.e., an obligation that is not subject to a condi-
tion precedent) on the part of the transferee to repay, and an
unconditional intention on the part of the transferor to secure
repayment of, such funds. Haag v. Commissioner, 88 T.C. 604, 616
(1987), affd. without published opinion 855 F.2d 855 (8th Cir.
1988); see also Frierdich v. Commissioner, 925 F.2d 180, 185 (7th
Cir. 1991), affg. T.C. Memo. 1989-393; Clark v. Commissioner, 18
T.C. 780, 783-784 (1952), affd. per curiam 205 F.2d 353 (2d Cir.
1953). Whether a transfer of funds constitutes a loan may be
inferred from objective characteristics surrounding the transfer,
including the presence or absence of a debt instrument, collat-
eral securing the purported loan, interest accruing on the
purported loan, repayments of the transferred funds, and any
attributes indicative of an enforceable obligation to repay the
funds transferred. See, e.g., Haag v. Commissioner, supra at
615-616 & n.6. In determining whether a transfer of funds
constitutes a loan, the substance, and not the form, of the
transaction is controlling for tax purposes. See, e.g., Knetsch
v. United States, 364 U.S. 361, 365-366 (1960).
In support of its position that the $1.5 million at issue
constitutes a loan, petitioner argues:
The advance from Super Rite on April 15, 1999
created an unconditional obligation to repay those
funds. It was only a condition subsequent, i.e. ful-
filling the obligations under the Supply and Require-
ments Agreement, on an annual basis, that gave rise to
the forgiveness of the annual debt service payment.
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