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(1) the intent of the parties; (2) the identity between
creditors and shareholders; (3) the extent of
participation in management by the holder of the
instrument; (4) the ability of the corporation to
obtain funds from outside sources; (5) the “thinness”
of the capital structure in relation to debt; (6) the
risk involved; (7) the formal indicia of the
arrangement; (8) the relative position of the obligees
as to other creditors regarding the payment of interest
and principal; (9) the voting power of the holder of
the instrument; (10) the provision of a fixed rate of
interest; (11) a contingency on the obligation to
repay; (12) the source of the interest payments;
(13) the presence or absence of a fixed maturity date;
(14) a provision for redemption by the corporation;
(15) a provision for redemption at the option of the
holder; and (16) the timing of the advance with
reference to the organization of the corporation. [Fin
Hay Realty Co. v. United States, supra at 696.]
The factors applicable to these cases all weigh in favor of
reclassifying any alleged loans from Mr. Wright to the
corporation as equity investments.
First, where funds advanced to a corporation by its
shareholders are proportional to the advancing shareholders’
equity interest in the corporation, there is an identity between
the purported creditor and the purported lender, which gives rise
to a strong inference that the funds advanced are additional
contributions to risk capital rather than loans. Segel v.
Commissioner, 89 T.C. 816, 830 (1987). In these cases,
Mr. Wright, the purported creditor, was the sole shareholder of
the purported debtor, HJ Builders. Mr. Wright was also the
corporation’s sole officer and had complete managerial control
over the corporation. Thus, the interests of debtor and creditor
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