- 12 -
invalid, or unenforceable Mark's agreement to repay petitioner's
advances.
Of course, we must still consider whether Mark Mann's
obligation to repay petitioner was contingent, on the basis of
the evidence other than petitioner's stipulation.
Respondent is correct that if a borrower promises to repay
only from a specified fund, the borrower's obligation will
generally be treated as contingent, and no bad debt deduction
will be allowed. See Ewing v. Commissioner, 20 T.C. 216, 229
(1953) (payment only from operating profits), affd. on other
grounds 213 F.2d 438 (2d Cir. 1954); Clark v. Commissioner, supra
(payment only from dividends on certain stock); 17A Am. Jur. 2d
Contracts sec. 496 (1991) (promise to pay out of a specified fund
generally renders contract conditional). But cf. Clay Drilling
Co. v. Commissioner, 6 T.C. 324 (1946) (bad debt deduction
allowed even though debt was repayable only from future
commissions to be earned by debtor). An obligation to repay will
also generally be found to be contingent if the borrower promises
to repay only when financially able to do so. See Zimmerman v.
United States, 318 F.2d 611 (9th Cir. 1963) (no valid debt
existed--and no bad debt deduction was proper--where repayment
was to be made only when the borrower could carry itself
financially, and only in whatever amount could be paid without
jeopardizing the borrower).
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011