- 16 -
obligated--to repay the full amount of the advances. As a
result, we also conclude that Mark Mann's obligation to repay
petitioner's advances was not "contingent" in the sense asserted
by respondent; it was a valid and enforceable obligation for
purposes of the bad debt deduction.
B. Did Petitioner and Mark Mann Create a Debtor-Creditor
Relationship with Respect to The Advances?
Although the advances were not "contingent" in the sense
asserted by respondent, this does not necessarily mean they were
bona fide debt. Petitioner must also prove that Mark Mann and
petitioner created a debtor-creditor relationship with respect to
the advances. See supra p. 9.
Whether a bona fide debtor-creditor relationship exists
depends on all the facts and circumstances, and generally no one
fact is determinative. An essential question is whether there is
a good-faith intent on the part of the recipient of the funds to
make repayment, and a good-faith intent on the part of the person
advancing the funds to enforce repayment. In determining whether
such intent exists, we consider all the evidence, and we evaluate
whether there was a reasonable expectation of repayment in light
of the economic realities of the situation. See Fisher v.
Commissioner, 54 T.C. 905, 909-910 (1970); G.M. Gooch Lumber
Sales Co. v. Commissioner, 49 T.C. 649, 656 (1968), remanded
Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NextLast modified: May 25, 2011