ABC Beverage Corp., f.k.a. Beverage America, Inc. - Page 19

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          The structure of the transactions ensured that there was no                 
          source of funds for Properties.  Respondent’s hypothesizing over            
          what could or should have been done ignores the realities of the            
          business and is unreasonable.  Respondent’s determination that              
          the Properties loan was not worthless in 1995 therefore was                 
          arbitrary, unreasonable, and an abuse of discretion.                        
               We find that the Properties loan was partially worthless in            
          Bad Debt Deduction Where Creditor’s Actions Contribute to                   
               We next consider whether petitioner may deduct the                     
          Properties loan as partially worthless although the legitimate              
          business decisions of petitioner’s predecessor, Bottlers,                   
          contributed to the worthlessness of the Properties loan.                    
          Respondent argues that Bottlers failed to pay the full amount of            
          rent, which, in turn, caused Properties to be unable to repay the           
          loan.  Respondent argues that petitioner is therefore not                   
          entitled to the deduction.  We disagree.  Petitioner’s legitimate           
          business decisions contributing to the worthlessness of the                 
          Properties loan do not preclude the bad debt deduction.                     
               It is well settled that certain actions of a creditor do               
          preclude bad debt deductions.  For example, a taxpayer may not              
          voluntarily release a solvent debtor and then claim a deduction             
          for a worthless debt.  Roth Steel Tube Co. v. Commissioner, 620             
          F.2d 1176 (6th Cir. 1980), affg. 68 T.C. 213 (1977); Am. Felt Co.           

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