- 105 -
so courts have focused on certain objective factors to
distinguish bona fide loans from disguised dividends and other
distributions, compensation, and contributions to capital. The
factors considered relevant for purposes of identifying bona fide
loans include (1) the existence or nonexistence of a debt
instrument; (2) provisions for security, interest payments, and a
fixed payment date; (3) the right to enforce the payment of
principal and interest; (4) whether repayments were made; (5) the
source of the funds used to repay the creditor; (6) the failure
of the debtor to pay on the due date or to seek a postponement;
(7) a status equal to or inferior to that of regular business
creditors; (8) “thin” or adequate capitalization; (9) the
debtor’s ability to obtain loans from outside lending
institutions; (10) identity of interest between the business
owner and the debtor or creditor; (11) the extent of a business
owner/creditor’s participation in management; and (12) treatment
of the transferred funds on the business’s books. See Estate of
Mixon v. United States, 464 F.2d 394, 402 (5th Cir. 1972); In re
Indian Lake Estates, Inc., 448 F.2d 574, 578-579 (5th Cir. 1971);
see also Haag v. Commissioner, supra at 616-617 & n.6; Haber v.
Commissioner, supra at 266. Each case turns on its own factors,
and “‘differing circumstances may bring different factors to the
fore.’” Jones v. United States, 659 F.2d 618, 622 (5th Cir.
1981) (quoting Slappey Drive Ind. Park v. United States, 561 F.2d
Page: Previous 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 NextLast modified: May 25, 2011