- 41 -
l. The Extent To Which the Advances Were Used
To Acquire Capital Assets
Respondent concedes that the advances to G�nther were used
primarily to service existing bank loans and that, therefore,
this factor is not relevant.
m. Failure To Repay on the Due Date
Petitioner’s advances to G�nther were made pursuant to an
open account arrangement with no fixed date for repayment.
Consequently, this factor is not relevant to our analysis.
3. Conclusion
Upon consideration of the above factors, we hold that
G�nther’s intercompany account balance during and after FYE May
31, 1992, was not a bona fide debt within the meaning of section
16625 and that petitioner is not entitled to the bad debt
deductions it claimed under section 166. We treat the advances
recorded in the intercompany account, instead, as capital
contributions, which created basis in G�nther’s stock.
Datamation Servs., Inc. v. Commissioner, T.C. Memo. 1976-252.
B. Guaranteed Bank Loan Assumed by Petitioner in 1994
For FYE May 31, 1994, petitioner claimed the equivalent of a
bad debt deduction for the guaranteed bank debt assumed as part
of GAI’s acquisition of G�nther. Petitioner argues that, because
it was an accrual basis taxpayer entitled to a deduction when all
25Our holding eliminates the need to discuss the remaining
requirements of sec. 166.
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