A$,$ B$,$ C$,$ form X Corporation to develop real estate. A contributes land with an FMV of $$1$ million and an adjusted basis of $$900,000.$ A received $500$ shares of stock of X $($$$1,000$ each$)$ and a $10-$year, $$500,000$ promissory note of X Corporation bearing a market rate of interest. B & C each contribute land with an FMV of $$500,000$ and adjusted basis of $$50,000.$ They each receive $250$ shares of X stock and a $10-$year note of X for $$250,000$ having a market rate of interest. In addition, X Corp borrows $$5$ million from a $3$rd party lender.

Are the various promissory notes of X Corp to A$,$ B$,$ and C debt or equity?

Would your answer change if the principal and interest of the notes to A$,$ B$,$ and C were subordinated to the debt owned by the outside lender?

Would you answer chance if the principal and interest of the note to A$,$ B$,$ and C were to be paid only out of profits of X Corp?

Why A$,$ B$,$ and C and X care whether the notes are debt of equity?