If purchasing stock shares of a company via a promissory note, Sec. 1.83-3(a)(2) states that "if the amount paid for the transfer of property is an indebtedness secured by the transferred property, on which there is no personal liability to pay all or a substantial part of such indebtedness, such transaction may be in substance the same as the grant of an option" (see https://www.law.cornell.edu/cfr/text/26/1.83-3).
Having the transaction not be treated as an option grant is important because then the long term capital gains holding period doesn't start which can result in a much higher tax paid if the shares appreciate and are sold eventually.
What percentage of the indebtedness must be secured personally to count as "substantial"?
Is there any case law or regulation that authoritatively establishes that definition in this context that someone could point to, or if not, how is this percentage arrived at?
Back in January 2010 when http://www.thetaxadviser.com/issues/2010/feb/unexpectedtaxconsequencesofbuyingemployerstockwithloanproceeds.html was written, it discussed there being no clear guidance with some practitioners saying 50% and some saying higher and some saying lower, but I wonder if either that was incorrect or if things have become clarified since then. What's ironic is that the IRS uses a far lower number for "substantial" when it's in the context of a person or entity not paying taxes.