- 17 -
loan because it did not have the cashflow.4 Third, soon after
Bottlers learned that G&K would not be able to purchase the
facilities, Bottlers combined with Brooks Beverage to become
BevAm, and the Properties structure no longer was necessary.
Finally, an appraisal revealed the bottling facilities were worth
just under $8 million. These specific, identifiable events
combined to result in the worthlessness of the Properties loan in
1995.
Respondent argues that Properties was a going concern with
potential value in 1995 and that therefore, the Properties loan
was not partially worthless during that year. See Crown v.
Commissioner, 77 T.C. 582 (1981); Findley v. Commissioner, 25
T.C. at 318. Respondent argues that Properties had sufficient
income and/or sufficient assets to satisfy its loan obligations.
Respondent sets forth several ways in which Properties could have
met its obligations. For example, respondent argues that
4Respondent argues that there is no evidence that Bottlers
failed to pay Properties the full amount of rent due on the
lease. We disagree. We found the testimony of Mr. Trebilcock,
the chairman and president of Bottlers, to be credible on this
point. Petitioner also introduced Properties’ accounting records
as evidence that Bottlers did not pay the full amount of rent for
1994 and 1995. Moreover, had Bottlers paid Properties the full
amount of rent, Properties eventually might have not had the cash
to pay Bottlers the principal on the Properties loan anyway
because Properties might be required to pay taxes on the rental
income it received from Bottlers, depleting its cash. This cash
depletion was precisely what the management group was attempting
to avoid by having Bottlers pay Properties only a portion of the
rent due.
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011