Sixth Circuit Notes Split re Standard of Review of Debt/Equity Questions in Tax Cases

Per Indmar Products Co., Inc. v. C.I.R., --- F.3d ----, 2006 WL 954183 (6th Cir. April 14, 2006):

The basic question before us is whether the advances made to the company by the stockholders were loans or equity contributions.

. . .

We review the Tax Court's factual findings for “clear error” and its application of law de novo. Vision Info. Servs., LLC v. Comm'r, 419 F.3d 554, 558 (6th Cir.2005); Holmes v. Comm'r, 184 F.3d 536, 543 (6th Cir.1999). The circuits are split on whether the debt/equity question is one of fact or law, or a mixed question of fact and law. Jaques v. Comm'r, 935 F.2d 104, 106-07 (6th Cir.1991) (collecting cases); Roth Steel, 800 F.2d at 629 (collecting cases). Earlier panels of this court have held that the question is one of fact. Jaques, 935 F.2d at 107; Roth Steel, 800 F.2d at 629; Smith v. Comm'r, 370 F.2d 178, 180 (6th Cir.1966).FN1 Accordingly, we review the Tax Court's findings for clear error.


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