- 22 -
indeed, important. We have said: “Whether a transfer of money
creates a bona fide debt depends upon the existence of an intent
by both parties, substantially contemporaneous to the time of
such transfer, to establish an enforceable obligation of
repayment.” Delta Plastics Corp. v. Commissioner, 54 T.C. 1287,
1291 (1970). We also agree with the Supreme Court of Indiana
that the we must make an objective appraisal of intent. See,
e.g., Hubert Enters., Inc. & Subs. v. Commissioner, 125 T.C. 72,
91 (2005) (“The subjective intent of the parties to a transfer
that the transfer create debt does not override an objectively
indicated intent to the contrary.”). Thus, petitioners’ beliefs
are not necessarily determinative. See, e.g., Bhatia v.
Commissioner, supra (stipulated conclusory statements by sole
shareholder of two S corporations in respect of bookkeeping
entries evidencing shareholder’s assumption of indebtedness
running from one corporation to the other insufficient to
establish bona fides of the transactions in question and their
economic substance); Burnstein v. Commissioner, T.C. Memo. 1984-
74 (testimony of sole shareholders of two S corporations that,
when they caused one corporation to transfer money to the other,
they intended and believed that they were actually transferring
their own money is not relevant to the question of whether they
actually incurred risk of nonrepayment).
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011