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other similar documents to substantiate their claim that the
$72,000 in miscellaneous checks paid to Mr. Wright over the
course of 2001 was in repayment of loans from Mr. Wright to the
corporation. See Meier v. Commissioner, T.C. Memo. 2003-94.
Petitioners have not persuaded us that any loans from Mr. Wright
to HJ Builders existed during the years in issue, and thus we
must conclude that the cash disbursements to Mr. Wright in 2001
were not made in repayment of such alleged loans.
Even if petitioners had presented consistent and credible
evidence that the cash payments to Mr. Wright were in repayment
of prior loans to the corporation, we would conclude, based on
the facts and circumstances of these cases, that those prior
loans were in reality equity contributions and not debt.
Claims of a debt relationship in a transaction between
controlling shareholders and their closely held corporations
warrant heightened scrutiny because, unlike the situation in an
arm’s-length transaction between unrelated parties, there is an
opportunity and often a motivation to have investments treated as
debt obligations rather than as capital contributions. Fin Hay
Realty Co. v. United States, 398 F.2d 694, 696 (3d Cir. 1968);
Cuyuna Realty Co. v. United States, 180 Ct. Cl. 879, 883-884, 382
F.2d 298, 300-301 (1967). When presented with the issue of
whether a purported loan is debt or equity, the courts have
generally weighed the following factors:
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