Opinion ID: 429782
Heading Depth: 2
Heading Rank: 1

Heading: Debt or Capital Contribution--a Question of Law

Text: 32 Courts generally bear responsibility for applying debt-equity factors; characterization of an advance as either debt or contribution to capital presents primarily a question of law. 9 Estate of Mixon v. United States, supra, 464 F.2d at 402; see also Slappey Drive Industrial Park, supra, 561 F.2d at 582, n. 17; Tyler v. Tomlinson, 414 F.2d at 850. We perceive no reason to deviate from this general rule under the facts of the instant case. 33 The only exception to debt-capital contribution determination as a matter of law arises when a court must rely on the parties' subjective intent, factor number seven. Issues of intent pose questions of pure fact. Byram v. United States, 705 F.2d 1418 (5th Cir.1983); see also Pullman-Standard v. Swint, 456 U.S. 273, 102 S.Ct. 1781, 72 L.Ed.2d 66 (1982). But, reliance on subjective intent and the submission of the debt-capital contribution question to a jury becomes necessary only when a court's analysis of other, objective factors fails to provide clear signals. The Mixon court stated that where the objective facts of the case are ambiguous and do not result in a clear manifestation of objective intent, then subjective intent is relevant on the issue. Mixon, supra, 464 F.2d at 407. The court, though, in Tyler v. Tomlinson, supra, 414 F.2d 844, pointed out that reliance on subjective intent should indeed be the exception. 34 Tax law requires that creditorship have genuine existentiality (citation omitted). This requires more than a declaration of intention to create an indebtedness and more than the existence of corporate paper encrusted with the appropriate nomenclature captions. 35 If appellants mean to say that a mere showing of an intent to create an indebtedness and the existence of something called notes is sufficient to take their case to the jury, we must disagree. If that were true, every debt-equity case would require a jury verdict no matter how transparent the attempt at tax avoidance. We, therefore, look not to mere labels or to the self-serving declarations of the parties, but to the more reliable criteria of the circumstances surrounding the transaction. 36 414 F.2d at 850. 37 TFB argues that the instant case falls within the exception where consideration of subjective intent is necessary. Maintaining that the facts stipulated to in the trial court left substantial ambiguity as to the import of the relevant, objective, debt-equity factors, TFB argues that the issue of intent was properly submitted to the jury. Determination of this first issue, therefore, requires an analysis of the relevant, objective factors surrounding TFB's advances to TAMDA. 38