*237 With respect to petitioner's other claim of "boot," respondent contends that only DCA voting stock was received by the Mayer shareholders in the exchange and therefore the acquisition qualified under section 368(a)(1)(B). Moreover, respondent argues that under Commissioner v. Danielson,378 F.2d 771">378 F.2d 771 (3d Cir. 1967), vacating and remanding 44 T.C. 549">44 T.C. 549 (1965), cert. denied 389 U.S. 858">389 U.S. 858 (1967), petitioner cannot challenge the tax consequences of its written acquisition agreement as construed by respondent absent a showing of fraud, undue influence, duress, or mistake in entering into the agreement. Respondent argues that petitioner has not shown the existence of any of these circumstances and is thus bound to the tax consequences of its written agreement.

In Danielson, the Court of Appeals for the Third Circuit stated that --

a party can challenge the tax consequences of his agreement as construed by the Commissioner only by adducing proof which in an action between the parties to the agreement would be admissible to alter that construction*238 or to show its unenforceability because of mistake, undue influence, fraud, duress, etc. * * * [Commissioner v. Danielson,378 F.2d at 775.]

This Court has not adopted the Danielson rule as set forth by the Third Circuit. Coleman v. Commissioner,87 T.C. 178">87 T.C. 178, 202 and n. 17 (1986), affd. without published opinion 833 F.2d 303">833 F.2d 303 (3d Cir. 1987); G C Services Corp. v. Commissioner,73 T.C. 406">73 T.C. 406, 412 and n.2 (1979). The standard applied by this Court is the less stringent "strong proof" rule. Coleman v. Commissioner, supra,87 T.C. at 202. It requires the taxpayer to present "strong proof," that is, more than a preponderance of the evidence, that the terms of the written instrument do not reflect the actual intentions of the contracting parties. Elrod v. Commissioner,87 T.C. 1046">87 T.C. 1046, 1066 (1986); G C Services Corp. v. Commissioner, supra,73 T.C. at 412. However, the Eleventh Circuit, to which an appeal in this case would lie, has indicated its acceptance of the Danielson rule. Bradley v. United States,730 F.2d 718">730 F.2d 718, 7200 (11th Cir. 1984),*239 cert. denied 469 U.S. 882">469 U.S. 882 (1984); Spector v. Commissioner,641 F.2d 376">641 F.2d 376, 386 (5th Cir. 1981), ^{71 T.C. 1017">71 T.C. 1017 (1979) cert. denied 454 U.S. 868">454 U.S. 868 (1981). Thus, while we still adhere to our "strong proof" standard, we are bound to apply the Danielson rule in the instant case. Golsen v. Commissioner,54 T.C. 742">54 T.C. 742, 756-757 (1970), affd. 445 F.2d 985">445 F.2d 985 (10th Cir. 1971).}

In Danielson, the Third Circuit found that the parties in that case were bound to the terms of their agreement for the sale of a business that allocated a specific portion of the sales price to the seller's covenant not to compete. Commissioner v. Danielson, surpa,378 F.2d at 778. However, it is clear that the Danielson rule applies beyond the confines of allocating payments to a covenant not to compete. Bradley v. United States, supra, 730 F.2d at 7200*240 (whether funds received from real property purchaser were interest income or payments on a continuing option); Spector v. Commissioner, supra,641 F.2d at 382 (whether transaction in which taxpayer surrendered his partnership interest in an accounting firm was a sale or a liquidation); Coleman v. Commissioner, surpa,87 T.C. at 202 (whether the taxpayers had a depreciable interest in certain computer equipmen involved in computer leasing arrangements). While the parties have not cited, and we have not found, a case applying Danielson in the context of a tax-free reorganization, we think the policy reasons and rationale behind Danielson make it applicable in the present case.

The Third Circuit stated the following reasons for its adoption of the Danielson rule:

* * * to permit a party to an agreement fixing an explicit amount for the covenant not to compete to attack that provision for tax purposes, absent proof of the type which would negate it in an action between the parties, would be in effect to grant, at the instance of a party, a unilateral reformation of the contract with a resulting unjust enrichment. If allowed, such an*241 attack would encourage parties unjustifiably to risk litigation after consummation of a transaction in order to avoid the tax consequences of their agreements. And to go behind the agreement at the behest of a party may also permit a party to an admittedly valid agreement to use the tax laws to obtain relief from an unfavorable agreement.

Of vital importance, such attacks would nullify the reasonably predictable tax consequences of the agreement to the other party thereto. Here the buyer would be forced to defend the agreement in order to amortize the amount allocated to the covenant. If unsuccessful, the buyer would lose a tax advantage it had paid the selling-taxpayers to acquire. In the future buyers would be unwilling to pay sellers for tax savings so unlikely to materialize.

Finally, this type of attack would cause the Commissioner considerable problems in the collection of taxes. The Commissioner would not be able to accept taxpayers' agreements at face value. He would be confronted with the necessity for litigation against both buyer and seller in order to collect taxes properly due. This is so because when the Commissioner tries to collect taxes from one party he*242 may, as here, dispute the economic reality of his agreement. When the Commissioner turns to the other party, there will likely be the arguments that the first party, as here, received consideration for bearing the tax burden resulting from the sale and that the covenants did indeed have economic reality. [Commissioner v. Danielson,378 F.2d at 775.]

Those concerns are particularly apt in the present case.

In applying the Danielson rule to the facts of the present case, we first not that the acquisition agreement wherein petitioner acquired all of the stock of Mayer Construction stated in its preamble that:

WHEREAS, the Shareholders [of Mayer companies] desire to transfer to D.C.A. and D.C.A. desires to acquire from the Shareholders all of the outstanding shares of the Corporations, solely in exchange for shares of voting common stock of D.C.A. which has no other class of stock outstanding, and for no cash or other property, upon the terms and conditions hereinafter set forth, it being intended by the parties hereto that such exchange be a tax-free reorganization within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code*243 of 1954, as amended, and that upon and after such exchange D.C.A. shall be the sole record and beneficial owner of all of the issued and outstanding capital stock of the Corporations; * * * [Emphasis supplied.]

In addition, article 13.10 of the acquisition agreement, concerning the actions of the parties to the agreement after closing, provided:

Neither Shareholders, D.C.A. nor any of the Corporations shall hereafter knowingly or deliberately take, maintain or defend any course of action or position which may reasonably be construed as repudiating, conflicting with or being inconsistent with the interest of the parties as expressed herein that the exchange of stock as provided for in this Agreement shall be a tax-free reorganization within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1954.

We think these two provisions in the acquisition agreement clearly express the intent that the acquisition qualify under section 368(a)(1)(B). On its face, the acquisition agreement is not ambiguous. As detailed in our findings of fact, petitioner and Mr. Mayer were involved in extensive arm's-length negotiations regarding the acquisition,*244 with each side represented by competent tax counsel. The acquisition agreement was redrafted twice to eliminate language that might possibly taint their intention that the acquisition qualify under section 368(a)(1)(B). Thus, under Danielson, petitioner must show that it entered into the agreement because of mistake, undue influence, fraud, duress, etc., otherwise it is bound to the tax consequences of the acquisition as stated in the agreement.

The evidence in this case is overwhelming that Both DCA and Mr. Mayer intended a tax-free reorganization under section 368(a)(1)(B), just as the acquisition agreement expressly stated. On the record as a whole, we would reach the same result under our own "strong proof" standard, or under the ordinary preponderance of the evidence stated. Moreover, since "boot" could be something outside the four corners of the parties' agreement, we would have to consider the entire evidentiary record in any event. Finally, petitioner's arguments as to why the Danielson rule does not apply brings us back to the same point, an examination of all the facts and circumstances in this case.

In arguing that the acquisition did not qualify as a*245 tax-free reorganization under section 368(a)(1)(B), petitioner does not contend that it entered into the agreement under any of the circumstances described in the Danielson rule. Instead, petitioner argues that in applying Danielson, we must consider the entire agreement of the parties to the acquisition. Petitioner contends that the entire agreement of the parties consists of both the acquisition agreement dated September 5, 1969, and the voting agreement entered into by Henry Mayer, Alvin Sherman, Irving Fishman, and Edward Lempka. Petitioner argues that the voting agreement guaranteed Henry Mayer a seat on DCA's board of directors. Petitioner claims this constitutes the receipt by Mr. Mayer of property other than voting stock, therefore invalidating the acquisition's treatment as a tax-free reorganization under section 368(a)(1)(B). Respondent argues that the voting agreement was a separate agreement among the respective shareholders for mutual consideration and was not part of the consideration paid by petitioner in acquiring the Mayer stock.

Petitioner contends that based on the evidence in the record, the voting agreement was an integral part of the acquisition,*246 and therefore should be considered as part of the entire agreement between petitioner and Mayer Construction and the Mayer stockholders. See n.9, supra. Specifically, petitioner claims that the evidence in the record shows (1) that early in the negotiations, and as a condition of the acquisition, Henry Mayer demanded a seat on petitioner's board of directors; (2) this demand was assented to by Alvin Sherman, petitioner's president; (3) this assent was evidenced by the July 21, 1969 voting agreement between Mr. Mayer, petitioner, Alvin Sherman, Irving Fishman, and Edward Lempka; (4) that on October 24, 1969, approximately two weeks after the closing of the acquisition, a DCA board of directors meeting was held wherein Mr. Mayer was elected to DCA's board of directors; (5) that in May of 1970 the July 21, 1969 voting agreement was revised, with the revised agreement, showing petitioner as a party thereto, executed as of April 1, 1970; and (6) that Judge Schwartz's opinion in the Delaware Federal District Court action rendered March 21, 1975, found as a fact that the 1969 voting agreement was one of two ancillary agreements executed pursuant to the reorganization. Petitioner argues*247 that these facts confirm that substantially more than the acquisition agreement of September 5, 1969 was involved in the transaction between petitioner and Mayer Construction and the Mayer stockholders. Petitioner further argues that if we exclude the voting agreement in our application of Danielson, we would be ignoring vital portions of the parties' overall agreement. We disagree with petitioner's interpretation of the record and view of the facts in this case.

Initially, we address the issue of when the voting agreement was executed. Henry Mayer never signed the proposed voting agreement dated July 21, 1969. Also the record does not establish that Alvin Sherman, Irving Fishman, or Edward Lempka ever signed it. The only executed voting agreement in the record is dated April 1, 1970, which was signed by Henry Mayer and the other individuals sometime in mid-May, 1970. Petitioner claims that while no executed copy of the July 21, 1969 voting agreement is in evidence, the record supports a finding that on July 21, 1969 at least a "gentlemen's agreement" existed among the respective shareholders regarding the voting agreement.

We agree with petitioner that as part of the*248 acquisition Henry Mayer desired a seat on petitioner's board of directors. However, Alvin Sherman was advised by DCA's tax counsel, Morris Sherman, and Henry Mayer was advised by his tax counsel, David Beck, that receiving a seat on DCA's board of directors as part of the acquisition could constitute "boot" and jeopardize the tax-free status of the reorganization both DCA and Mr. Mayer wanted. Since Mr. Mayer and DCA each sought to have the acquisition qualify as a tax-free reorganization, any guarantee of Mr. Mayer receiving a seat on DCA's board of directors as part of the acquisition was specifically and intentionally excluded from the agreement. Instead, David Beck advised Mr. Mayer that any agreement regarding a seat on DCA's board of directors was something for Mr. Mayer to discuss with the other DCA shareholders and was not part of the planned corporate reorganization.

Based on the record as a whole and for the reasons discussed below, we conclude that any unwritten "gentlemen's agreement" in 1969 or in the voting agreement executed in May of 1970 was a separate agreement among the respective shareholders and was not part of the acquisition agreement.

We first note the*249 cover letter accompanying the proposed voting agreement dated July 21, 1969, a date preceding even the first draft of the acquisition agreement. The cover letter, written by Alvin Sherman to Henry Mayer, states in its first sentence "Enclosed please find a draft of a letter which will be our restrictive stock agreement between the shareholders." (Emphasis supplied.) This shows that Alvin Sherman, president of a publicly held corporation, understood the proposed voting agreement to be an agreement strictly among the respective stockholders. See n.12, supra. This proposed voting agreement, dated July 21, 1969, was never presented to petitioner's tax counsel, Morris Sherman, and was never acted upon by petitioner's board of directors. That is true also as to the voting agreement executed in 1970.

We also note the proxy statements contained in the formal notices of petitioner's annual stockholders' meetings for each of the years 1970 through 1973. In describing the voting agreement dated as of April 1, 1970, each of the proxy statements states that "In April, 1970 Messrs. Sherman, Fishman, Lempka and Mayer entered into an agreement which provides * * * ."

Petitioner nevertheless*250 contends that the voting agreement was not strictly among the stockholders, arguing that petitioner itself was a party to the agreement. In support of that argument, petitioner claims that without the proxies Sherman, Fishman, and Lempka held and voted on behalf of the management of DCA, the three shareholders did not collectively hold a sufficient number of shares to insure Henry Mayer a seat on the board of directors. Petitioner argues that without DCA's participation through the solicitation and vote of the proxies, the voting agreement was ineffective. Petitioner concludes therefore, that, by implication, DCA must be considered a party to the voting agreement and that therefore the agreement was not strictly among the stockholders. We do not draw the same conclusion from these facts that petitioner does.

A proxy is a grant of authority by a shareholder to someone else to vote the former's shares. Abbey Properties Co., v. Presidential Insurance Co.,119 S. 2d 74, 77 (Fla. Dist. Ct. App. 1960); 18A Am. Jur. 2d 983 (1985). A proxy holder is not the agent of the corporation*251 whose share are being voted; he is the agent of the shareholder giving the proxy. Therefore, we cannot imply that petitioner was a party to the voting agreement merely because Sherman, Fishman, and Lempka voted the proxies that they held.

Moreover, on May 1, 1970, DCA had outstanding 913,443 shares of common stock, its only class of voting stock. Of these 913,443 shares, Sherman, Fishman, Lempka, and Mayer held 478,092 shares, ^{*252 We also think the evidence in the record fully supports respondent's argument that the voting agreement was an agreement among the respective shareholders for mutual consideration. The voting agreement provides that Sherman, Fishman, and Lempka shall vote their shares so as to insure that DCA's board of directors will always contain one member nominated by Mr. Mayer. It further provides that Mr. Mayer shall vote all of his shares in favor of all other directors as Alvin Sherman shall advise him. Respondent argues that these respective promises to vote for each other constitute mutual consideration. In further support of his contention that the voting agreement contained mutual consideration, respondent points to the deposition testimony of Alvin Sherman and Irving Fishman in prior litigation with Mr. Mayer. This deposition testimony is part of the record in this case. See n.20, supra. Testifying as to why he entered into the voting agreement, Alvin Sherman stated:}

But there is no way that I would have gone into the [acquisition] agreement with Henry Mayer without a voting agreement between the four of us because it was agreed on and I wanted the assurance that his [Mayer's] *253 shares would not be voted against us, as he wanted the assurance that he would be put on the board, we would elect one of his choice.

We also note the deposition testimony of Fishman, describing the purpose and background of the voting agreement:

Q. Do you know why the document came into existence in the first place . . .?

A. Yes, to protect us against possible takeover of outside companies. We voted. We were voting each other's shares for one another.

Q. Yes, and what did this accomplish?

A. It guaranteed we would vote for each other, they couldn't split our votes and take over the company by an outside source.

Q. And it guaranteed who would vote the shares for each other?

A. Henry Mayer and the three individuals, Irving Fishman, Al Sherman, and Ed Lempka.

In addition, the Delaware Federal District Court also indicated that the voting agreement was between the shareholders for mutual consideration. Mayer v. Development Corporation of America,396 F. Supp. 917">396 F. Supp. 917, 920 (D.Del. 1975). Petitioner relies upon that court's statement that the voting agreement was one of two "ancillary agreements" ^{*254 bolster its contention that the voting agreement should be considered as part of the entire agreement between petitioner and Mr. Mayer. However, the Delaware Federal District Court described the voting agreement as follows:}

In the second ancillary agreement, three DCA directors, Sherman, Fishman, and Lempka, agreed to vote their shares at all meetings held for the election of members of the DCA Board of Directors in such a way as to assure the election of at least one member nominated by Mayer. In return, Mayer agreed to vote his shares of DCA for the election of such nominees as Alvin Sherman might designate. [Emphasis supplied.] [396 F. Supp. at 920.]

*255 We hold that the voting agreement was a separate agreement between the respective shareholders for mutual consideration and that DCA was not a party to the voting agreement. Therefore, we reject petitioner's contention that the voting agreement constituted property other than voting stock received from DCA by Mr. Mayer in return for his Mayer stock.

Thus, whether under the Danielson rule, under our own "strong proof" rule, or under the ordinary preponderance of the evidence standard, we conclude that petitioner's acquisition of all the stock of Mayer Construction was intended to be and was a tax-free reorganization under section 368(a)(1)(B). Therefore, under section 362(b) petitioner has a carryover basis in the Mayer stock of $ 186,259, not the $ 4,775,895 cost basis it now claims.

The next congeries of issues involve the liquidation of Mayer Construction in 1975 and the characterization as debt or equity of the cash advances made by petitioner to Mayer Construction from 1969 through 1975. At a special meeting of DCA's board of directors held on October 31, 1975, it was resolved that Mayer Construction be liquidated, and that prior to the end of calendar year 1975 its*256 assets, subject to existing liabilities, be distributed in complete cancellation of its outstanding capital stock. The resolution further provided that on the distribution date Mayer Construction was to transfer its assets to DCA of New Jersey, Inc., another wholly owned subsidiary of DCA. The distribution to DCA of New Jersey, Inc., was stated to be on behalf of the account of DCA. DCA had a basis in its Mayer Construction stock of $ 186,259. Mayer Construction, in the liquidation, transferred to DCA of New Jersey assets having a fair market value of $ 5,387,150. DCA says, however, that Mayer Construction was solvent at that time and that it is entitled to a deduction for worthless stock under section 165(g) or a bad debt under section 166. First, petitioner must avoid the application of section 332, which provides that no gain or loss is recognized upon the complete liquidation of a subsidiary. These interrelated issues turn on the proper characterization of DCA's advances to its subsidiary as debt or as contributions to capital.

The general rule of section 332 provides that no gain*257 or loss is recognized by a parent corporation on the receipt of property distributed in complete liquidation of its at least 80-percent-owned subsidiary. ^{section 332 only applies if the recipient (parent) corporation receives at least partial payment for the stock which it owns in the liquidating subsidiary corporation. Section 1.332-2(b), Income Tax Regs. If section 3332 does not apply because the parent corporation does not receive any payment for its subsidiary's stock in the liquidation, then the parent corporation looks to section 165(g)Section 1.332-2(b), Income Tax Regs.}

*258 As of December 31, 1975, all of Mayer Construction's assets and liabilities had been transferred to DCA of New Jersey, Inc., in accordance with the October 31, 1975 resolution. The fair market value of the net assets received by DCA of New Jersey, Inc., was $ 5,387,150. As of December 31, 1975, the amount of advances owed by Mayer Construction to DCA was $ 16,466,831.42 and the accrued and unpaid interest calculated on that amount was $ 4,538,991. We have long recognized that amounts paid to a shareholder-creditor upon liquidation must first be applied to satisfy any outstanding indebtedness, and only the remainder of the assets distributed constitutes a distribution in liquidation in exchange for the shareholder-creditor's stock. Braddock Land Co. v. Commissioner,75 T.C. 324">75 T.C. 324, 333 (1980); Houston Natural Gas Corp. v. Commissioner,9 T.C. 570">9 T.C. 570, 574 (1947), affd. 173 F.2d 461">173 F.2d 461 (5th Cir. 1949). See also Spaulding Bakeries, Inc. v. Commissioner,27 T.C. 684">27 T.C. 684, 687 (1957), affd. 252 F.2d 693">252 F.2d 693 (2d Cir. 1958); Menzies, Inc. v. Commissioner,34 B.T.A. 163">34 B.T.A. 163, 168 (1936).*259 Thus, if we determine that the advances from petitioner to Mayer Construction constituted bona fide debt, as petitioner contends, then the net assets received would first be applied against the advances owed by Mayer Construction to petitioner. Since such advances exceed the amount of net assets received, petitioner claims it would be entitled to a partially worthless debt deduction under section 166. ^{section 165(g) since section 332 would not apply to the liquidation because DCA would have received nothing in exchange for its Mayer Construction stock.}

*260 Respondent, on the other hand, determined that the advances from petitioner to Mayer Construction constituted capital contributions placed at the risk of Mayer Construction's business. If we determine that the advances constituted capital contributions, then the net assets received by petitioner in the liquidation would be considered as payment in exchange from Mayer Construction's stock. If so, then sections 322 would apply to the liquidation and no gain or loss would be recognized by petitioner in 1975. Respondent argues in the alternative that if we determine that the advances constituted debt, the purported liquidation of Mayer Construction followed by the transfer of all of its operating assets to DCA of New Jersey, Inc., represented in substance a reorganization under section 368(a)(1)(D), and therefore precluded the recognition of any loss by petitioner in 1975.

In deciding whether the advances in question in the present case were loans or capital contributions, we first note that there is no single defined set of standards in the debt-equity area. *261 that each debt-equity case must be decided on its own facts and that there are so many combinations of factual circumstances that precedents in these factual cases are generally of little value. Georgia-Pacific Corp. v. Commissioner,63 T.C. 790">63 T.C. 790, 796 (1975). The basic determination of the question requires an evaluation of the risk that petitioner has undertaken. The question is whether petitioner had a reasonable expectation of repayment regardless of the success of the business or whether its advances were put at the risk of the corporate venture. Gilbert v. Commissioner,248 F.2d 399">248 F.2d 399, 406 (2d Cir. 1957). See also Fin Hay Realty Co. v. United States,398 F.2d 694">398 F.2d 694, 697 (3d Cir. 1968); Hambuechen v. Commissioner,43 T.C. 90">43 T.C. 90, 99-100 (1964). Moreover, it is petitioner who has the burden of establishing that the advances were loans. New Colonial Ice Co. v. Helvering,292 U.S. 435">292 U.S. 435, 440 (1934).

*262 In resolving questions of debt versus equity, courts have identified and considered various factors. See, e.g., Stinnett's Pontiac Service, Inc. v. Commissioner,730 F.2d 634">730 F.2d 634, 638 (11th Cir. 1984), affg. a Memorandum Opinion of this Court (13 factors); Estate of Mixon v. United States,464 F.2d 394">464 F.2d 394, 402 (5th Cir. 1972) (13 factors) A. R. Lantz Co. v. United States,424 F.2d 1330">424 F.2d 1330 (9th Cir. 1970) (11 factors); Fin Hay Realty Co. v. United States, supra,398 F.2d at 696 (16 factors); Georgia-Pacific Corp. v. Commissioner, supra,63 T.C. at 796-799 (13 factors).

Since an appeal in this case would lie in the United States Court of Appeals for the Eleventh Circuit, we shall look to the approach taken by that court in Stinnett's Pontiac Service, Inc. v. Commissioner, supra. See Golsen v. Commissioner, supra,54 T.C. at 756-757. The court in Stinnett's Pontiac Service identified 13 factors which merited consideration in determining whether advances constituted debt*263 or equity:

(1) the names given to the certificates evidencing the indebtedness; (2) the presence or absence of a fixed maturity date; (3) the source of payments; (4) the right to enforce payment of principal and interest; (5) participation in management flowing as a result; (6) the status of the contribution in relation to regular corporate creditors; (7) the intent of the parties; (8) "thin" or adequate capitalization; (9) identity of interest between creditor ande stockholder; (10) source of interest payments; (11) the ability of the corporation to obtain loans from outside lending institutions; (12) the extent to which the advance was used to acquire capital assets; and (13) the failure of the debtor to repay on the due date or to seek a postponement. 730 F.2d at 638. ^{Estate of Mixon v. United States, supra,464 F.2d at 402), nor is any single factor determinative. John Kelley Co. v. Commissioner,326 U.S. 521">326 U.S. 521, 530 (1946). Moreover, due to the myriad of factual circumstances under which debt-equity questions can arise, all of the factors are not relevant*264 to each case. Dixie Dairies Corp. v. Commissioner,74 T.C. 476">74 T.C. 476, 493-494 (1980). Hereinafter, only the factors considered material to our decision will be discussed. In analyzing the relevant factors, we recognize that advances between a parent corporation and a wholly owned subsidiary are subject to particular scrutiny because the control element suggests the opportunity to contrive a fictional debt. In the Matter of Uneco, Inc.,532 F.2d 1204">532 F.2d 1204, 1207 (8th Cir. 1976); Cuyuna Realty Co. v. United States,382 F.2d 298">382 F.2d 298, 300-301 (Ct. Cl. 1967).}

1. The Name Given to the Certificate

The thrust of this factor is the type of certificate used by the parties. The issuance of a stock certificate indicates an equity contribution; the issuance*265 of a bond, debenture, or note is indicative of an indebtedness. Estate of Mixon v. United States, supra,464 F.2d at 403. In the present case some of the advances were secured by notes, and twice, once as of June 30, 1972 and once as of October 3, 1974, all prior outstanding advances were consolidated into one note. The notes executed were demand notes with provisions for interest. This factor indicates that the advances here involved were loans, rather than capital contributions.

2. Presence or Absence of a Maturity Date

The presence of a fixed maturity date indicates a fixed obligation to repay, a characteristic of a debt obligation. The absence of the same on the other hand indicates that repayment was in some way tied to the fortunes of the business, indicative of an equity advance. See Tyler v. Tomlinson,414 F.2d 844">414 F.2d 844 (5th Cir. 1969). In the present case all but one of the notes in evidence are demand notes, and the one note that was not a demand note was subsequently consolidated into a demand note. Correspondence in the record reflects*266 that DCA sought repayment of the advances on several occasions. However, despite only minimal repayments, DCA still continued to advance Mayer Construction substantial additional funds. Analyzing the advances under this factor, they are more indicative of equity contributions than loans.

3. The Source of the Payments

The import of this factor is that if repayment is possible only out of corporate earnings, the advance has the appearance of a contribution of equity capital. If repayment is not dependent upon earnings, the advance reflects a loan to the corporation. See Harlan v. United States,409 F.2d 904">409 F.2d 904 (5th Cir. 1969). Here, the bulk of petitioner's advances were used by Mayer Construction to acquire land and to build housing developments thereon. It is clear that the only source of repayment of the advances was future sales of housing units. In a letter dated August 31, 1970 from Henry Mayer to DCA's Treasurer, Pedro Diaz, Mayer, responding to DCA's request for repayment of its advances, stated "The reduction of your loans is strictly dependent on the cash*267 flow generated from sales." Moreover, the establishment of a sinking fund or reserve was not required of Mayer Construction to insure repayment of the advances. This factor tends to show that petitioner's advances to Mayer Construction were equity and not debt.

4. Subordination

Whether the advances have a status equal to or inferior to that of regular corporate creditors is of some import in the determination of whether Petitioner here was dealing as a shareholder or as a creditor. See Tomlinson v. The 1661 Corporation,377 F.2d 291">377 F.2d 291 (5th Cir. 1967); United States v. Henderson,375 F.2d 36">375 F.2d 36 (5th Cir. 1967); United States v. Snyder Brothers Company,367 F.2d 980">367 F.2d 980 (5th Cir. 1966). In the instant case, the $ 16,316,458.97 note dated October 3, 1974, consolidating all previous parcels of real property. The mortgage stated that it was subject and subordinate to all mortgages then of record affecting the stated real property. While we do not place a great deal of emphasis on this factor (see Harlan v. United States, supra,409 F.2d at 908, and Tomlinson v. The 1661 Corporation, supra,377 F.2d at 298), it still*268 points to the advances as being equity rather than debt.

5. Intent of the Parties

This is a factor that may support petitioner's position that the advances were loans. It is clear from the evidence in the record (e.g., the acquisition agreement, the notes executed, petitioner's and Mayer Construction's books and records, and their correspondence) that both petitioner and Mayer Construction always referred to the advances as loans. But while they intended the advances to be loans, they disagreed virtually from the beginning as to whether such loans were to be short-term or something more long-term in the nature of an investment in the Mayer subsidiary. Were intent the sole consideration, we might agree that the parties here intended, at least initially, to create indebtedness. However, the issue is not so much what the parties intended, but whether for tax purposes the transactions will be so recognized. Tomlinson v. The 1661 Corporation, supra,377 F.2d at 299. Thus, while this factor may indicate that the advances were loans, it is not determinative of the issue.

6. Thin or Adequate Capitalization

Under this factor we look to Mayer Construction's debt-to-equity*269 ratio. The purpose if examining the debt-to-equity ratio in characterizing a stockholder advance is to determine whether a corporation is so thinly capitalized that a business loss would result in an inability to repay the advance. Such an advance would be indicative of venture capital rather than a loan. Bauer v. Commissioner,748 F.2d 1365">748 F.2d 1365, 1369 (9th Cir. 1984), revg. a Memorandum Opinion of this Court; Gilbert v. Commissioner, supra,248 F.2d at 407.

The debt-to-equity ratio compares a corporation's total liabilities to its stockholder's equity. ^{*270 in each particular case in making such a determination. We agree with petitioner that the debt-to-equity ratios for the years 1969 through 1972 do not appear excessive. However, we find it significant that petitioner advanced Mayer Construction in excess of $ 6,000,000 during 1974 even though Mayer's debt-to-equity ratio was 73.1 to 1 as of December 31, 1973. This indicates that the advances were equity rather than debt since Mayer Construction's financial condition at the time made repayment of the advances extremely remote.}

*271 7. Source of Interest Payments

A true lender is concerned with interest. Curry v. United States,396 F.2d 630">396 F.2d 630, 634 (5th Cir.1968), cert. denied 393 U.S. 967">393 U.S. 967 (1968). See also National Carbide Corporation v. Commissioner,336 U.S. 422">336 U.S. 422, 435 n.16 (1949). The failure to insist on interest payments ordinarily indicates that the parent corporation is not seriously expecting any substantial interest income, but is interested in the future earnings of the subsidiary or the increased market value of its investment in the subsidiary. Curry v. United States, supra,396 F.2d at 634. The record in the present case shows that petitioner's advances had provisions for interest. Under the terms of the acquisition agreement, however, the interest petitioner charged Mayer Construction was the same rate that petitioner paid for its borrowed funds. Thus, DCA received no interest income from its Mayer subsidiary even though interest income and management fees from its operating subsidiaries were DCA's principal sources of income. The*272 record reflects that at least through June 1972, interest calculations on the advances to Mayer Construction were prepared on a regular basis. Although not always timely, some interest payments based on these calculations were made to petitioner. However, as of December 31, 1975, accrued and unpaid interest due petitioner on the advances was in excess of $ 4,500,000. Again, the fact that petitioner continued to advance funds to Mayer in 1973 and 1974 despite the Mayer subsidiary's failure to repay even the interest due on the advances indicates an equity contribution.

8. The Ability of the Corporation to Obtain Loans from Outside Lending Institutions

If a corporation is able to borrow funds from outside sources at the time an advance is made, the transaction has the appearance of a bona fide indebtedness. Estate of Mixon v. United States, supra,464 F.2d at 410. The purpose of this inquiry is to test whether the shareholder-contributor acted in the same manner towards its wholly owned corporation as ordinary reasonable creditors would have acted. If no reasonable*273 creditor would have loaned funds to the corporation at the time of the advance, an inference arises that a reasonable shareholder would likewise not so act. Based on the evidence in the record, we do not believe that an outside lender would have loaned money to Mayer Construction as petitioner did. By the end of 1971 petitioner had advanced $ 2,090,000 to Mayer Construction and despite numerous requests for repayment of the advanced funds had received back only $ 190,500. As of the end of 1972 the total amount advanced by petitioner was $ 7,721,522, while the repayments totaled only $ 308,500. By July of 1974 petitioner had advanced Mayer a total of $ 20,748,425. Mayer Construction's repayments through that date totaled only $ 3,190,676. We think no outside lending institution would have advanced funds in this way and continued to advance funds to Mayer Construction as petitioner did in light of the subsidiary's minimal repayments and worsening financial condition. We find that this factor strongly suggests that the advances were equity and not debt.

9. The Extent to which the Advances were used to Acquire Capital Assets

*274 If the advances are used to meet the daily operating needs of the corporation, this indicates a bona fide indebtedness. If the advances are used to acquire capital assets, this indicates an equity contribution. Estate of Mixon v. United States, supra at 410. In the present case the acquisition agreement stated that DCA shall make available to Mayer Construction such working capital as Mayer may require to sustain the normal growth and expansion of its business. While the acquisition agreement speaks of the advances as working capital, the record reflects that a large portion of the advances was used by Mayer Construction to purchase land for future development. By the end of 1973 Mayer Construction had acquired some 4,000 acres in southern New Jersey as part of its land banking program, a program approved by DCA. We think this factor shows that the advances were made subject to the risks of Mayer Construction's business, indicative of an equity contribution.

In sum, a consideration of the relevant factors in the present case indicates that the advances were in substance capital contributions and not loans. We find petitioner' advances to its wholly owned subsidiary,*275 both in amount and in its repayment terms, far in excess of what a disinterested third-party lender would have loaned Mayer Construction based on Mayer's financial condition at the time. Thus, despite petitioner's and Mayer Construction's stated intent that the advances were to be loans, we conclude and hold that for Federal tax purposes the advances were in substance capital contributions placed at the risk of the subsidiary's business. Therefore, section 332 applies to the liquidation of Mayer Construction in 1975, and petitioner is not entitled to either a bad debt or a worthless securities deduction in that year. ^{*276 To reflect the foregoing,}

Decision will be entered for the respondent.

Footnotes

1. Henry D. Mayer was also the petitioner in Docket No. 14486-80, which was originally consolidated with this case but which was settled before trial, possibly as a result of the litigation between petitioner and Mr. Mayer in the Federal District Court of New Jersey. See n.21, infra.↩
2. Unless otherwise indicated, all section references are to the Internal Revenue Code of 1954 as amended and in effect during the taxable years in question, and all "Rule" references are to the Tax Court Rules of Practice and Procedure. ↩
3. Petitioner filed its Form 1120 for the year 1975 on September 15, 1976 pursuant to an extension of time to file. ↩
4. The record does not indicate that the parties' tax lawyers had become involved in the negotiations to that point. These proposals apparently represented the initial discussions of Mr. Mayer and Alvin Sherman, who were experienced businessmen but not lawyers. ↩
5. At that time it was not entirely clear whether section 483 applied at all to contingent stock earn-outs in various types of tax-free reorganizations, including "B" reorganizations, but the Tillinghast article assumed that it did. That assumption proved to be correct, and any doubt has now been removed by the decided cases. Vorbleski v. Commissioner,589 F.2d 123">589 F.2d 123 (3d Cir. 1978), affg. 68 T.C. 413">68 T.C. 413 (1977); Katkin v. Commissioner,570 F.2d 139">570 F.2d 139 (6th Cir. 1978), affg. 67 T.C. 379">67 T.C. 379 (1976); Solomon v. Commissioner,570 F.2d 28">570 F.2d 28 (2d Cir. 1977), affg. 67 T.C. 379">67 T.C. 379 (1976); Jeffers v. United States,556 F.2d 986">556 F.2d 986 (Ct.Cl. 1977); Cocker v. Commissioner,68 T.C. 544">68 T.C. 544↩ (1977).
6. Section 1.483-1(b)(6), Income Tax Regs,. Example (8) states:
Example (8). P Corporation and Q Corporation each owns one-half of the stock of R Corporation. On December 31, 1963, pursuant to reorganization qualifying under section 368(a)(1)(B), P contracts to acquire the one-half interest held by Q for a distribution on such date of 40,000 shares of P voting stock. As a part of the plan of reorganization, Q immediately places 10,000 of such voting shares in escrow. The escrow agreement provides that all or a portion of the stock placed in escrow is to be returned to P within 3 years (together with dividends and earnings thereon) if R's net profits do not exceed certain amounts specified in the agreement and that Q Corporation is entitled to vote the escrowed stock until such time as it may be returned to P Corporation. The agreement further provides that the escrow will terminate at the end of 3 years and that any stock then remaining in escrow (together with dividends and earnings thereon) is to be redelivered to Q Corporation. Q Corporation currently includes in income all dividends and earnings thereon with respect to the escrowed stock. Since Q Corporation is treated as having received, on December 31, 1963, all payments due under the exchange, section 483↩ does not apply to the transfer of any of the excrowed stock to Q Corporation.
7. Mr. Beck and Mr. Sherman were no doubt correct. Mr. Sherman's provision for delivery of the additional shares after December 31, 1972 would seem to come within Example 7 of section 1.483(b)(6), Income Tax Regs., which was also discussed in the Tillinghast article and which resulted in imputed interest under section 483↩.
8. Mr. Mayer, as well as other individuals involved in these negotiations, and even lawyers at that time, confused the matter of a tax-free exchange under section 368(a)(1)(B) and the separate problem of imputed interest on any later "payments" of stock in such a tax-free exchange. See n.5, supra.↩ However, there is no doubt that Mr. Mayer was insistent that there by no tax liability of either type.
9. The acquisition agreement was between DCA, as one party, and the Mayer companies and Mayer stockholders, as the other party. The principal DCA stockholders (Alvin Sherman, Irving Fishman, and Edward Lempka), in their capacity as stockholders, were not parties to the acquisition agreement. ↩
10. The computation of the initial shares (8 x consolidated net earnings divided by $ 15.00 per share of DCA stock) actually yielded 87,021 shares of DCA stock. The computation of the additional shares (6 x excess earnings divided by $ 15.00 per share of DCA stock) actually yielded 182,543 shares of DCA stock, but of course the former Mayer shareholders were limited, under the terms of the acquisition agreement, to no more than 85,000 initial shares of DCA stock and no more than 85,000 additional shares. ↩
11. For example, in its Proxy Statement for the annual stockholders' meeting to be held June 17, 1970, DCA reported that Alvin Sherman owned 192,431 shares (approximately 21 percent) and Henry Mayer owned 118,068 shares (approximately 13 percent) of DCA's stock. ↩
12. Alvin Sherman testified that he and Mr. Mayer "played lawyer" and entered into a "side agreement," this proposed voting agreement. Petitioner now argues that the proposed voting agreement was either executed or at least constituted a binding "gentlemen's agreement," that this agreement constituted "boot" received by Mr. Mayer from DCA and thus the 1969 transaction was not a tax-free "B" reorganization. The Court simply does not believe Mr. Sherman's testimony. The Court finds it inherently incredible that these two non-lawyers, having retained competent tax counsel to structure the transaction to qualify as a tax-free "B" reorganization, having been warned about "boot," having been told a provision for a board seat could constitute "boot," having been told that any "boot" would invalidate the tax-free transaction sought by both DCA and Mr. Mayer, nonetheless "played lawyer" and entered into such a "side agreement." If this highly implausible scenario occurred at all, which we doubt, Alvin Sherman could only have been acting in his individual capacity as a shareholder and not in his capacity as a corporate officer. It would be a breach of fiduciary duty for a corporate officer to ignore the legal advice of the corporation's tax counsel, to enter into such an agreement knowing the corporation's tax counsel had been instructed to structure a tax-free "B" reorganization and knowing from that tax counsel that any "boot" would jeopardize the very tax-free transaction sought. Alvin Sherman was the president of a publicly held corporation and owned 26.1 percent of the DCA stock. It is inherently incredible that he would purport to bind the corporation in such a side agreement that would amount to a breach of the acquisition agreement and do so without consulting the corporation's tax counsel and without presenting the matter to the DCA board of directors. There is no evidence that the proposed voting agreement or any other voting agreement was ever submitted to or acted upon by the DCA board. ↩
13. There was some initial confusion in the record as to whether Mr. Mayer sent the proposed voting agreement dated July 21, 1969 or a proposed revised version dated April 1, 1970 to Mr. Beck for review. Based upon the record as a whole, the Court concludes that he inadvertently sent the 1969 version thinking that it was the same as the 1970 version that Diaz later sent to him after their conversation about the proxy statement. ↩
14. In contrast to the proposed voting agreement dated July 21, 1969 the signature of the April 1, 1970 proposed revised voting agreement included Development Corporation of America as follows:
Very truly yours,
DEVELOPMENT CORPORATION OF AMERICA
Alvin Sherman
Irving Fishman
Edward Lempka
Read and Accepted:
Development Corporation of America had not been listed in the signature line of the July 21, 1969 proposed voting agreement. ↩
15. As early as September 4, 1970, the money arguments were becoming more heated, with Mr. Mayer writing to Alvin Sherman as follows:
I can summarize my sentiments in a nut shell: "Without money who needs you, the constant pressure, the aggravation, the management fees, the whole bit." The whole purpose of the merger was to provide us with adequate funds and relieve pressure, not to create it. ↩
16. At some point the Mayer Construction subsidiary's name was changed to the "Mayer Corporation" and the Mayer Corporation had subsidiaries of its own. However, for convenience and consistency, we will usually refer to the corporation as either the Mayer subsidiary or Mayer Construction.↩
17. That report is referred to in the minutes of the executive committee meeting held on January 16, 1974, at which it was first decided that Mr. Mayer's resignation would be requested. The report was prepared later because it refers to events occurring in February 1974. ↩
18. The Court declines to find that any losses were caused by or attributable to any negligence or mismanagement on the part of Mr. Mayer. Such charges have been made in numerous other lawsuits and have never been established. Based on the record as a whole, the Court is satisfied that the market for housing in southern New Jersey simply vanished as a result of the energy crisis and that fact, plus the environmental concerns restricting development of Mayer Construction's land, account for the business difficulties encountered by the subsidiary at that time. Had the expansion in southern New Jersey developed as DCA and Mr. Mayer reasonably expected it to, the Mayer Construction land banking program, a program approved by DCA's board of directors, could have produced a bonanza, with Mayer Construction as the very successful giant Mr. Palmisciano thought he was going to work for. The specific charges by Alvin Sherman are not relevant to the issues this Court must decide, but the resulting litigation is relevant or at least provides the excuse for some of the issues raised here. See, for example, nn.19, 21, 28, infra.↩
19. The motions were denied on March 21, 1975 in a comprehensive opinion by the Honorable Murray Schwartz, United States District Judge in Delaware. In the present Tax Court case, the parties have stipulated to the pleadings and motions in the various lawsuits in the Florida and Delaware federal district courts, but they have not stipulated to the correctness of the various allegations by the litigants in those lawsuits. In the present Tax Court case, DCA relies upon statements made in Judge Schwartz's opinion, statements describing the proposed voting agreement of July 21, 1969 as an "ancillary agreement" executed pursuant to the acquisition agreement and a footnote suggesting that the July 21, 1969 proposed voting agreement was actually signed by the parties thereto. This Court is not aware of the evidentiary record before Judge Schwartz. However, in ruling on these various preliminary motions, his opinion points out numerous lacunae in the factual record and various factual areas that should be developed when and if the cases proceeded to trial. The cases did not go to trial. For these reasons, we do not regard Judge Schwartz's comments about the proposed voting agreement of July 21, 1969 as findings of fact. We have made our own finding of fact based on the fully developed evidentiary record presented at the trial before this Court. See also n.28, infra.↩
20. In the present Tax Court case, the parties have stipulated into evidence for all purposes eight depositions and four volumes of transcript of the four-day trial before Judge Meanor. The parties have also stipulated to Judge Meanor↩'s comprehensive 72-page opinion on the merits as well as his earlier opinion on the defendants' earlier motions for summary judgment, which had been denied. While we have carefully considered all of these materials, we have also considered the testimony in this Court and our opportunity to observe the witnesses before us.
21. It was apparently because of this judicial determination that petitioner in this Tax Court proceeding no longer contest respondent's disallowance of the imputed interest deduction claimed by DCA on its 1973 return, and the Internal Revenue Service has settled its case with Mr. Mayer. See n.1, surpa. We note that Judge Meanor clearly and carefully limited his opinion to the breach of contract issues before him and expressed no opinion on the tax issues now before this Court. Mayer v. Development Corp. of American,541 F. Supp. 828">541 F. Supp. 828 (D. N.J. 1981), affd. without published opinion 688 F.2d 822">688 F.2d 822 (3d Cir. 1982). Petitioner has chosen not to pursue the imputed interest issue, as such, in this Court, taking the position that Judge Meanor's opinion "effectively precluded" it from doing so. We assume petitioner does not mean "legally precluded" it but that the practical results of having to pay damages to Mr. Mayer, including any taxes on any imputed interest income to him, precluded petitioner for business reasons. Thus, because of petitioner's concession, it might appear that this Court would not be called upon to resolve the imputed interest issue. However, while not pursuing the issue for the year 1973, petitioner, in its arguments for the year 1975, argues that it was entitled to an imputed interest deduction and having agreed to forgo the same that constitutes boot so as to destroy the tax-free nature of the 1969 acquisition agreement. To the extent that this further "boot" argument is bottomed upon Judge Meanor↩'s opinion and holding, it seems to be an argument that DCA's own breach of contract constituted "boot".
22. Section 368(a)(1)(B) provides:
SEC. 368. DEFINITIONS RELATING TO CORPORATE REORGANIZATIONS.
(a) Reorganization. --
(1) In General. -- For purposes of parts I and II and this part, the term "reorganization" means--
* * *
(B) the acquisition by one corporation, in exchange solely for all or a part of its voting stock (or in exchange solely for all or a part of the voting stock of a corporation which is in control of the acquiring corporation), of stock of another corporation if, immediately after the acquisition, the acquiring corporation has control of such other corporation (whether or not such acquiring corporation had control immediately before the acquisition); ↩
23. Section 1012 provides:
SEC. 1012. BASIS OF PROPERTY -- COST.
The basis of property shall be the cost of such property, except as otherwise provided in this subchapter and subchapters C (relating to corporate distribution and adjustments), K (relating to partners and partnerships), and P (relating to capital gains and losses). The cost of real property shall not include any amount in respect of real property taxes which are treated under section 164(d) as imposed on the taxpayer.
Generally, the cost of property is the amount paid for such property in cash or other property. Sec. 1.1012-1(a), Income Tax Regs. The parties in this case disagree on what petitioner's cost basis in the Mayer shares would be under section 1012. On its 1975 tax return petitioner claimed a cost basis of $ 4,775,895, composed of $ 1,020,000 for the initial 85,000 shares (85,000 x $ 12 fair market value on closing date) and $ 3,755,895 for the additional shares. The parties' disagreement relates to the value of the 85,000 additional shares received by the Mayer shareholders. Petitioner computes its cost basis for the additional shares on 192,610 shares (the 85,000 additional shares plus those from stock splits and dividends) at $ 19.50 per share, the fair market value in April 1973, when those shares were release from escrow. The 85,000 additional shares were issued to the Mayer shareholders in April 1970, then placed in escrow for approximately three years during the "earn-out" period. Petitioner argues that the Mayer shareholders were not the beneficial owners of the additional shares until the shares were released from escrow in April 1973. Therefore, petitioner contends that for purposes of section 1012, the additional shares should be valued as of April 1973. Respondent computes the cost basis for the additional shares of 85,000 shares x $ 12.25, the fair market value on April 6, 1970, when the additional 85,000 shares were issued and placed in escrow, for a total cost basis of $ 2,061,250 rather than the $ 4,775,895 claimed by petitioner. Respondent argues that all the incidents of ownership of the additional shares were obtained by the Mayer shareholders upon issuance to them in April 1970. We agree and have so found. Thus, we agree with respondent that if we find that petitioner's basis in the Mayer shares is to be determined under section 1012, then the additional DCA shares should be valued as of April 1970. However, the correct cost basis figure is not relevant to our disposition of the case since we find, for the reasons stated below, that petitioner's acquisition of Mayer Construction qualified as a tax-free reorganization under section 368(a)(1)(B). Therefore, petitioner takes a carryover basis in the Mayer shares of $ 186,259 under section 362(b)↩.
24. Morris Sherman testified and petitioner argues on brief that the parties' escrow arrangement did not satisfy the requirements of Example (8) of section 1.483-1(b)(6), Income Tax Regs.↩, but we are never told in what specific respects. Morris Sherman suggested the escrow arrangement differed from Example (8) because of DCA's alleged business concerns. DAC's only business concern was the total number of DCA shares to be issued to acquire the Mayer companies. The outside limit was already essentially foreordained by the Mayer companies' high earnings that supported the 80,000 to 85,000 initial shares, with the additional shares not to exceed that number. Thus, while Alvin Sherman fretted over "paying" 160,000 to 170,000 DCA shares, which he thought amounted to about $ 2,000,000, more than he thought the companies were worth, nonetheless he agreed to do so. While Morris Sherman testified and petitioner now argues on brief that the escrow provision somehow related to DCA's business concerns about the number of shares to be issued, that argument is not borne out by the record as a whole.
25. In Bonner v. City of Prichard, Ala.,661 F.2d 1206">661 F.2d 1206, 1209↩ (11th Cir. 1981), the Eleventh Circuit adopted as binding precedent all of the decisions of the former Fifth Circuit handed down prior to the close of business on September 30, 1981.
26. This figure includes 26,022 shares owned by Henry Mayer's wife, Marianne, and 19,684 shares owned by the Mayers' minor children. ↩
27. Cumulative voting is a method of voting for corporate directors entitling each shareholder to cast a number of votes equal to the number of his shares multiplied by the number of directors, or the number of directors to be elected, with the option of giving all his votes to a single candidate or of distributing them among two or more as he sees fit. The purpose of cumulative voting is to enable the minority stockholders of a corporation to secure representation on the board of directors. However, where there is no cumulative voting, as is the case with DCA, the owners of more than 50 percent of the voting stock may elect all the directors. See 18B Am. Jur. 2d 286-292 (1985). ↩
28. Mayer v. Development Corporation of America,396 F. Supp. 917">396 F. Supp. 917, 920 (D.Del. 1975). The other agreement the Delaware Federal District Court was referring to was the employment agreement between Henry Mayer and the newly formed Mayer Construction, the wholly owned subsidiary of DCA.
Interestingly, in the later litigation in the New Jersey Federal District Court, DCA argued that Mr. Mayer's disclosure in the Delaware litigation of the unexecuted July 1969 Letter Voting Agreement and Judge Schwartz's statement about "ancillary agreements" constituted a breach by Mr. Mayer of section 13.10 of the acquisition agreement, quoted in the text above, so as to relieve DCA of its breach of section 13.10. Judge Meanor rejected that argument, stating, among other things:
Judge Schwartz' reference to the July 1969 Letter Voting Agreement as "ancillary" to the reorganization was not a determination of an issue presented to him by the plaintiffs [the Mayers]. It was merely a prefatory "factual" statement and certainly not the ratio decidendi on any legal argument or position taken by the plaintiffs.
Furthermore, the crucial connection between Judge Schwartz's characterization of the July 1969 Letter Voting Agreement as an "ancillary" agreement and a determination by the I.R.S. that this agreement constitutes the talismanic "boot" is too attenuated for me to draw. * * * [Mayer v. Development Corp. of America, supra,541 F. Supp. at 860.]
We agree with Judge Meanor. See also n.19, supra.↩
29. Section 332, in pertinent part, provides as follows:
SEC. 332. COMPLETE LIQUIDATIONS OF SUBSIDIARIES.
(a) General Rule. -- No gain or loss shall be recognized on the receipt by a corporation of property distributed in complete liquidation of another corporation.
(b) Liquidations to Which Section Applies. -- For purposes of subsection (a), a distribution shall be considered to be in complete liquidation only if --
(1) the corporation receiving such property was, on the date of the adoption of the plan of liquidation, and has continued to be at all times until the receipt of the property, the owner of stock (in such other corporation) possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and the owner of at least 80 percent of the total number of shares of all other classes of stock (except nonvoting stock which is limited and preferred as to dividends); and either
(2) the distribution is by such other corporation in complete cancellation or redemption of all its stock, and the taxable of all the property occurs within the taxable year; in such case the adoption by the shareholders of the resolution under which is authorized the distribution of all the assets of such corporation in complete cancellation or redemption of all its stock shall be considered an adoption of a plan of liquidation, even though no time for the completion of the transfer of the property is specified in such resolution; or
(3) such distribution is one of a series of distributions by such other corporation in complete cancellation or redemption of all its stock in accordance with a plan of liquidation under which the transfer of all the property under the liquidation is to be completed within 3 years from the close of the taxable year during which is made the first of the series of distributions under the plan, except that if such transfer is not completed within such period, or if the taxpayer does not continue qualified under paragraph (1) until the completion of such transfer, no distribution under the plan shall be considered a distribution in complete liquidation. ↩
30. Section 165(g) provides as follows:
(g) Worthless Securities. --
(1) General rule. -- If any security which is a capital asset becomes worthless during the taxable year, the loss resulting therefrom shall, for purposes of this subtitle, be treated as a loss from the sale or exchange, on the last day of the taxable year, of a capital asset.
(2) Security defined. -- For purposes of this subsection, the term "security" means --
(A) a share of stock in a corporation;
(B) a right to subscribe for, or to receive, a share of stock in a corporation; or
(C) a bond, debenture, note, or certificate, or other evidence of indebtedness, issued by a corporation or by a government or political subdivision thereof, with interest coupons or in registered form.
(3) Securities in affiliated corporation. -- For purposes of paragraph (1), any security in a corporation affiliated with a taxpayer which is a domestic corporation shall not be treated as a capital asset. For purposes of the preceding sentence, a corporation shall be treated as affiliated with the taxpayer only if --
(A) stock possessing at least 80 percent of the voting power of all classes of its stock and at least 80 percent of each class of its nonvoting stock is owned directly by the taxpayer, and
(B) more than 90 percent of the aggregate of its gross receipts for all taxable years has been from sources other than royalties, rents (except rents derived from rental of properties to employees of the corporation in the ordinary course of its operating business), dividends, interest (except interest received on deferred purchase price of operating assets sold), annuities, and gains from sales or exchanges of stocks and securities.
In computing gross receipts for purposes of the preceding sentence, gross receipts from sales or exchanges of stocks and securities shall be taken into account only to the extent of gains therefrom. As used in subparagraph (A), the term "stock" does not include nonvoting stock which is limited and preferred as to dividends. ↩
31. Section 166, in pertinent part, provides as follows:
SEC. 166. BAD DEBTS.
(a) General Rule. --
(1) Wholly worthless debts. -- There shall be allowed as a deduction any debt which becomes worthless within the taxable year.
(2) Partially worthless debts. -- When satisfied that a debt is recoverable only in part, the Secretary or his delegate may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction.
(b) Amount of Deduction. -- For purposes of subsection (1), the basis for determining the amount of the deduction for any bad debt shall be the adjusted basis provided in section 1011 for determining the loss from the sale or other disposition of property.
Section 1.166-1(c), Income Tax Regs., provides that only a bona fide debt qualifies for purposes of section 166 and defines a bona fide debt as follows:
A bona fide debt is a debt which arises from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum of money. * * * A gift or contribution to capital shall not be considered a debt for purposes of section 166↩. * * *
32. In the Tax Reform Act of 1969, Pub. L. 91-172, 83 Stat. 487, 613, sec. 415(a), Congress enacted section 385 as an attempt to pass to respondent the task of prescribing appropriate regulations to determine whether an interest in a corporation is to be treated as debt or equity. Section 385 provides as follows:
SEC. 385. TREATMENT OF CERTAIN INTERESTS IN CORPORATIONS AS STOCK OR INDEBTEDNESS.
(a) Authority To Prescribe Regulations. -- The Secretary or his delegate is authorized to prescribe such regulations as may be necessary or appropriate to determine whether an interest in a corporation is to be treated for purposes of this title as stock or indebtedness.
(b) Factors. -- The regulations prescribed under this section shall set forth factors which are to be taken into account in determining with respect to a particular factual situation whether a debtor-creditor relationship exists or a corporation-shareholder relationship exists. The factors so set forth in the regulations may include among other factors:
(1) whether there is a written unconditional promise to pay on demand or on a specified date a sum certain in money in return for an adequate consideration in money or money's worth, and to pay a fixed rate of interest,
(2) whether there is subordination to or preference over any indebtedness of the corporation,
(3) the ratio of debt to equity of the corporation,
(4) whether there is convertibility into the stock of the corporation, and
(5) the relationship between holdings of stock in the corporation and holdings of the interest in question.
Final regulations for section 385 were issued in December of 1980, T.D. 7747, 1 C.B. 141">1981-1 C.B. 141, but with a delayed effective date that subsequently was extended several times. Effective August 5, 1983, however, the section 385 regulations were withdrawn, T.D. 7920, 2 C.B. 69">1983-2 C.B. 69, thus leaving only case law to guide our inquiry into the debt-equity issue. Moreover, even if the regulations had not been withdrawn, they could only be advisory to us in the present case since the regulations applied only to interests in corporations created after December 31, 1980, 1 C.B. 141">1981-1 C.B. 141↩, and all the transactions in the present case took place from 1969 to 1975.
33. We note that the Eleventh Circuit adopted the 13 factors and the analysis used by the Fifth Circuit in Estate of Mixon v. United States, supra,464 F.2d at 402-411. See n.25, supra.↩
34. Congress recognized this as the appropriate method of calculating the debt-to-equity ratio in enacting section 385:
The debt-equity ratio of the issuing corporation for purposes of this test generally is determined by comparing the corporation's total indebtedness with the excess of its money and other assets over that indebtedness. * * *
S. Rept. 91-552 (1969), 3 C.B. 423">1969-3 C.B. 423↩, 513.

35. These ratios are calculated as follows:

Year	Total	Stockholder's
Ended	Liabilities	Equity	Ratio
12/31/69	$ 1,822,221	$ 478,192	3.8 to 1
12/31/70	3,052,009	699,497	4.4 to 1
12/31/71	8,926,643	1,111,551	8.0 to 1
12/31/72	20,257,701	2,320,181	8.7 to 1
12/31/73	26,845,057	367,129	73.1 to 1
12/31/74	29,753,840	(11,703,282)	*

* Ratio cannot be calculated due to negative stockholder's equity. ↩

36. Since we hold for respondent on this issue, we need not address his alternative argument that the liquidation of Mayer Construction and transfer of its assets to DCA of New Jersey, Inc., constituted a reorganization under section 368(a)(1)(D)↩. However, based on the facts in this case as detailed n our Findings of Fact above, we think respondent's argument is well taken. DCA of New Jersey carried on rather than winding down the business, until a new energy crisis in 1979 precipitated a decision to get out of the building business. Any loss that occurred would not be recognized before 1979, if at all. In 1979 petitioner went out of the building business in New Jersey and contributed the stock of DCA of New Jersey [under a new name of CentrOcean] to the University of Miami. Based on the fair market value of that stock, petitioner claimed a charitable deduction of $ 920,193 in 1979 and $ 907,379 in 1980.