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give petitioners any debt-financed bases in Sidal. See Underwood
v. Commissioner, 535 F.2d 309 (5th Cir. 1976), affg. 63 T.C. 468
(1975); Bhatia v. Commissioner, T.C. Memo. 1996-429; Shebester v.
Commissioner, T.C. Memo. 1987-246; see also Hitchins v.
Commissioner, 103 T.C. 711, 716-718 (1994).
2. Paulan Direct Payments
Because the Paulan direct payments were, in fact, payments
from Paulan directly to Sidal (and Sidal repaid Paulan directly),
petitioners must prove that Paulan, in making those payments (and
in receiving the repayments), was acting on behalf of (i.e., as
agent of) petitioners, who were the actual lenders to Sidal. Put
another way, petitioners must establish facts sufficient for us
to draw the legal conclusion that, on account of the Paulan
direct payments, Sidal was indebted to them, not to Paulan.
Petitioners claim that it is Indiana law that governs whether a
debtor-creditor relationship exists and, under Indiana law,
intent governs. Petitioners cite Union Sec., Inc. v. Merchants’
Trust and Sav. Co., 185 N.E. 150, 153 (Ind. 1933), in which the
Supreme Court of Indiana set forth the test for distinguishing
between a loan and a sale: “The test which determines whether
the real transaction between the parties was a loan or a sale is
the intention of the parties, and their intention is to be
ascertained from the whole transaction, including the conduct of
the parties as well as their written agreement.” Intent is,
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