The taxpayer must prove that the underlying economic transaction was not concocted to avoid or reduce tax liability. In the Gregory Vs. Helvering case, the Supreme Court actually uses the word ‘sham’.
Recourse debt is a legal right drafted into a loan agreement allowing the lender to seek the right for damages in case of default on the loan. Recourse debt identifies the party for recourse and this party must sign the document in order to bind itself to the lender. In most situations, the recourse is to a third party that will derive some form of benefit from the loan.
In the arsenal of capitalizing a business operation, long term debt serves as one of the primary sources of capital. If you are an owner of a small business, you need to understand the relationship this source has to the overall financial status of the company. Too much debt and the owner is burden by the cash outlays to service.
The process of collecting a large pool of investors, each contributing or investing a small amount of dollars for a highly focused project is referred to as crowdfunding. The crowd is financing the project or goal. This is very similar to how large non-profits address significant events worldwide. A good example is the American Red Cross addressing disaster relief in the aftermath of a major natural tragedy.