The Commissioner of Internal Revenue (Commissioner) assessed Investors Insurance Agency, Inc. (Taxpayer) with a deficiency when it determined that $130,000 interest received by taxpayer in 1974 triggered the provisions of the personal holding company tax. 26 U.S.C. § 541. The Tax Court affirmed the deficiency assessment, rejecting taxpayer’s argument that the $130,000 was not interest. Investors Insurance Agency, Inc. v. Commissioner, 72 T.C. 1027 (1979). We affirm.
In 1963, taxpayer entered into a joint venture with Sherwood Development Co. (Sherwood) to develop a large residential tract. Sherwood managed the joint venture, and taxpayer contributed $350,000 for property acquisition. The joint venture agreement gave taxpayer the right to veto any change in ownership of Sherwood and to terminate the joint venture if one of Sherwood’s key stockholders sold his interest.
In 1969, the Sherwood stockholders negotiated an exchange of their stock for Weyerhaeuser stock. Taxpayer consented to the exchange in return for a personal guarantee from the stockholders that if the joint venture had distributed no profits by the end of 1973, the stockholders would pay taxpayer its initial investment plus 6% simple annual interest from 1963. Any distributions by the joint venture would reduce the stockholder’s liability.
Since the joint venture made no distributions through 1973, the stockholders owed taxpayer the $350,000 initial investment and $230,030.23 in interest. Stockholders and taxpayer negotiated a new agreement providing for payment of the interest in two installments, 1974 and 1975, and postponement of the principle payment to 1978.
On December 31, 1974, the stockholders paid taxpayer $130,000 in interest, which taxpayer reported as such on its 1974 tax return. Both parties agree that if this amount is interest, taxpayer is subject to the § 541 personal holding company tax.
The Tax Court rejected taxpayer’s argument that the $130,000 was merely a return on its capital investment in the joint venture. Taxpayer asserted that the 1969 agreement between it and the Sherwood stockholders was a guaranty by the latter of joint venture distributions. Joint venture distributions would have been a return *1330on capital, not interest. Therefore, taxpayer argued that payment by guarantors of the promised distributions could not be interest, either.
The Tax Court found that the 1969 agreement created not a secondary, guarantor liability in the stockholders, but a direct, although contingent, liability. This liability became a legally enforceable obligation in 1974 when no distributions had been made and the stockholders became liable for the amounts agreed to. Since the amounts were not a return on capital, the Tax Court found them to be interest.
We agree that the 1969 agreement did not create a secondary guaranty relationship on the part of the stockholders. The joint venture owed taxpayer nothing. There was nothing for the stockholders to guarantee. Cf. Golder v. C. I. R., 604 F.2d 34 (9th Cir. 1979) (traditional guaranty by owners of closely held corporation of the corporation’s debt). The stockholders’ liability was primary.
While not conceding the Tax Court’s finding that the 1974 agreement elevated a contingent debt to an unconditional one, taxpayer argues that, even if a debt existed in 1974, the “interest” cannot be interest because it accrued during a period when no debt existed. For this argument, taxpayers cite numerous cases holding that for interest to be deductible under the Code, it must be paid for the use of money loaned, i.e., there must be a debt. See, e.g., Deputy v. DuPont, 308 U.S. 488, 494, 60 S.Ct. 363, 366, 84 L.Ed. 416 (1940).
While we agree with the principle, we disagree with taxpayer’s application. Analysis of the pre-debt interest issue requires two inquiries. We must decide first, whether the joint venturers intended these amounts to be interest and second, whether that intention can be honored where the interest relates to periods before the debt existed or became unconditional. Dunlap v. Commissioner, 74 T.C. 1377 (1980), rev’d on other grounds, 82-1 U.S.T.C. 19195 (8th Cir. 1982).
On the first issue, we are influenced by the joint venturers’ consistent labeling of the payment as interest and taxpayer’s report of it as interest on its tax return. “As a general rule, the government may indeed bind a taxpayer to the form in which he has factually cast a transaction.” In re Steen, 509 F.2d 1398, 1402 n.4 (9th Cir. 1975).
We agree that the character of a payment for tax purposes should be determined by the substance of a transaction rather than its form. Taxpayer, however, offers no other plausible explanation of the transaction than the loan agreement it appears to be. Taxpayer’s argument that the money represents consideration for its permission to the Sherwood stockholders to exchange their stock for Weyerhaeuser stock, does not change the interest payments into a return of capital.
Taxpayer had the right to terminate the joint venture when the Sherwood stockholders proposed to sell their stock. It left its investment in the joint venture only on the stockholders’ promise that the investment would be repaid along with a reasonable return for its use. The substance of the agreement is no more than a conversion of the original investment to a loan with interest.
Furthermore, if, as taxpayer argues, the 1969 agreement was consideration, we fail to see how it could also be contingent. The liability or obligation was unconditional. Only the amount was subject to variance. We do not need to decide this issue, however.
The joint venturers intended the $230,-030.23 to be interest. It accrued on a debt which became legally enforceable in 1974 at the latest. We honor the joint venturers’ intention that this be interest even though it was calculated on the basis of 6% per year from 1963, the date of the original investment.
We find the situation indistinguishable from that in Commissioner v. Philadelphia Transportation Co., 174 F.2d 255 (3d Cir. 1949) and Commissioner v. Columbia River Paper Mills, 126 F.2d 1009 (9th Cir. 1942). In those cases, corporations issued bonds several months after their stated dates and paid interest back to the stated dates. The *1331Commissioner disallowed the interest deductions for the period prior to issue, arguing that no debt existed at that time.
The courts found it immaterial that the interest was calculated from a period prior to the bonds’ issuance. The interest accrued when it was paid and was deductible in the year it accrued. Commissioner v. Philadelphia Transportation Co., 174 F.2d 255, 256 (3d Cir. 1949); Commissioner v. Columbia River Paper Mills, 126 F.2d 1009, 1010 (9th Cir. 1942).
“In short, the situation is one where the parties to the transaction . . . have agreed on the one hand to pay, and on the other hand to accept, a definitely ascertainable sum as compensation for the use of money over a stated period of time.” Id. at 1010. The $230,030.23 of which the $130,000 was the first installment, was the agreed upon sum for the use of the $350,000. It matters not how it was calculated. The interest accrued no later than 1974 when the debt became unconditional in obligation and amount. See also Monon Railroad v. C.I.R., 55 T.C. 345 (1970).
The $130,000 was interest and properly triggered the personal holding company tax. The judgment is AFFIRMED.