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the advances were paid directly to third parties on Mr. Bogue’s
behalf. After Mrs. Kidder’s 1987 marriage to Mr. Kidder and
through the years under consideration, petitioners continued to
advance funds to Mr. Bogue. The advances were not formalized, no
collateral or security was provided, and no written demands for
repayment were made by petitioners.
On Schedule D of their 1992 income tax return, petitioners
claimed a $145,267 short-term capital loss attributable to a
“Loss on Personal Loan - David Bogue”. On that same Schedule D,
petitioners reported a long-term capital gain of $83,445, which
left a net short-term capital loss of $61,822, of which $3,000
was claimed for 1992. The remaining $58,882 short-term capital
loss was carried over to 1993 and applied against an $89,814
long-term capital gain reported for 1993. Respondent disallowed
the entire $145,267 loss claimed with respect to Mr. Bogue,
explaining that petitioners had “not established that the amount
was a bad debt arising from a true debtor-creditor relationship”.
On February 28, 1992, Mr. Bogue and his wife (Mrs. Bogue),
engaged in a business known as Garage Doors Unlimited,
voluntarily filed for bankruptcy protection. In Mr. and Mrs.
Bogue’s initial petition seeking bankruptcy protection,
petitioners were not listed as creditors. After speaking with
Mr. and Mrs. Bogue’s bankruptcy attorney, petitioners, based on
their estimates of the outstanding advances, decided to file a
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