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as the parties may agree.’” Commissioner v. Valley Morris Plan,
305 F.2d 610, 618 (9th Cir. 1962) (quoting Natl. Bank v. Fid. &
Cas. Co., 131 F. Supp. 121, 123 (S.D. Ohio 1954)). The Court of
Appeals determines whether a transaction is a loan by examining
the transaction as a whole. See Bloom v. I.C. Sys., Inc., 972
F.2d 1067, 1068 (9th Cir. 1992); Estate of Chism v. Commissioner,
322 F.2d 956, 960 (9th Cir. 1963), affg. Chism Ice Cream Co. v.
Commissioner, T.C. Memo. 1962-6.
In Welch v. Commissioner, 204 F.3d 1228, 1230 (9th Cir.
2000), affg. T.C. Memo. 1998-121, the Court of Appeals found the
following seven factors relevant in determining whether a
transaction qualified as a true loan:
(1) whether the promise to repay is evidenced by a note
or other instrument; (2) whether interest was charged;
(3) whether a fixed schedule for repayments was
established; (4) whether collateral was given to secure
payment; (5) whether repayments were made; (6) whether
the borrower had a reasonable prospect of repaying the
loan and whether the lender had sufficient funds to
advance the loan; and (7) whether the parties conducted
themselves as if the transaction were a loan. * * *
The seven factors are nonexclusive, and no single factor is
dispositive. Id. The seven factors form a general basis upon
which the Court of Appeals analyzes transactions. Id.
A factor evidencing a loan is the lender’s charging the
borrower interest. A partner of the accounting firm that
prepared petitioner’s individual income tax return and Caspian’s
corporate income tax return testified that the $14,059 deducted
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