Gerald L. and Erma L. Dunnegan - Page 7

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          petitioners at trial or on brief are deemed conceded.  The issues           
          that petitioners addressed at trial or in their brief are                   
          considered below.  Petitioners failed to file a reply brief                 
          ordered by the Court.                                                       
          I.  Business Bad Debt                                                       
               The first issue is whether the monetary transfers that                 
          petitioners made to Auto Plaza are capital contributions or are             
          bona fide debts that are deductible as business bad debts under             
          section 166 when they became worthless.                                     
               Generally, taxpayers are allowed deductions for bona fide              
          debts owed to them that become worthless during a year.  Sec.               
          166(a).  Bona fide debts generally arise from valid                         
          debtor-creditor relationships reflecting enforceable and                    
          unconditional obligations to repay fixed sums of money.  Sec.               
          1.166-1(c), Income Tax Regs.  For purposes of section 166,                  
          contributions to capital and equity investments in corporations             
          do not constitute or qualify as bona fide debts.  Kean v.                   
          Commissioner, 91 T.C. 575, 594 (1988).                                      
               The question of whether transfers of funds to closely held             
          corporations constitute debt or equity in the hands of the                  
          recipient corporations must be decided on the basis of all of the           
          relevant facts and circumstances.  Dixie Dairies Corp. v.                   
          Commissioner, 74 T.C. 476, 493 (1980).  Courts have established a           
          list of nonexclusive factors to consider when evaluating the                

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