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Intercompany bank account to pay Peoplefeeders' expenses and loan
payments should give rise to bona fide debt treatment of the
claimed $3,751,930.
Petitioner further argues that during its 1992 taxable year,
the purported $3,751,930 debt obligation owed by Peoplefeeders to
Square Pan became worthless, that for the year in issue bad debts
between members of consolidated groups of taxpayers were
deductible, and that petitioner is entitled to a bad debt
deduction of $3,751,930 for its 1992 taxable year.
Respondent argues that the payments out of the Intercompany
bank account of Peoplefeeders’ expenses and loan payments did not
have associated with them typical indicia of loans, and that the
evidence does not establish that it was intended for
Peoplefeeders to repay Square Pan any difference between cash
receipts transferred into the Intercompany bank account on behalf
of Peoplefeeders and expenses and loan payments paid out of the
Intercompany bank account on behalf of Peoplefeeders.
Respondent would treat that difference not as a genuine debt
obligation of Peoplefeeders to Square Pan but as a constructive
dividend from Square Pan to Peoplefeeders.
The purported $3,751,930 debt obligation of Peoplefeeders to
Square Pan was not evidenced by promissory notes or security
agreements. No maturity dates, interest, repayment terms, or
repayment amounts were agreed to. The transfers of cash receipts
from Peoplefeeders to the Intercompany bank account were not
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