- 9 -
The fact that some payments on debts become delinquent,
standing alone, does not establish the worthlessness or
uncollectibility of the debts or of any portion thereof.
Milenbach v. Commissioner, 106 T.C. 184, 204-205 (1996).
A taxpayer’s business judgment concerning whether debts in a
particular year are partially worthless, if clearly supported by
facts, may be sufficient to prove the partial worthlessness of
the debts for a particular year. Portland Manufacturing Co. v.
Commissioner, supra at 73.
Petitioners argue that the alleged “sound business judgment”
of petitioners has been established by the loan delinquencies,
the automobile repossessions, and the inherent nature of the
loans made to high credit risk customers. We disagree.
We perceive little “sound business judgment” in petitioners’
method of charging off the loans in issue. Rather, petitioners’
method was arbitrary and unrelated to the exercise of any
meaningful discretion with respect to particular loans.
Essentially, because petitioners’ automobile loans were made to
high risk customers, petitioners would have us treat all of their
automobile loans to customers whose cars were repossessed as
inherently worthless from the day the loans originated. We
reject that treatment. The facts of loan delinquency and
automobile repossession in a year, combined with high risk
debtors, do not automatically establish the full or partial
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011