- 3 - Pursuant to extensions of time to file, petitioners’ 2000 joint tax return was due October 15, 2001. Petitioners filed their joint tax return relating to 2000 on April 15, 2004, and their joint tax return relating to 2001 on April 30, 2004. Respondent disallowed petitioners’ business bad debt deductions and determined additions to tax pursuant to section 6651(a)(1) relating to 2000 and 2001. Petitioners filed their petition with the Court on June 23, 2006, while residing in Montgomery, Texas. OPINION We must determine whether the expenses Mr. Bynum paid on behalf of SEI are deductible business bad debts. A taxpayer is entitled to deduct bona fide debts that become worthless within the taxable year. Sec. 166(a)(1). Bona fide debts must arise from debtor-creditor relationships based upon valid and enforceable obligations to pay fixed or determinable amounts of money. Sec. 1.166-1(c), Income Tax Regs. A contribution to capital does not qualify as bona fide debt for purposes of section 166. Calumet Indus., Inc. v. Commissioner, 95 T.C. 257, 284 (1990). The ultimate question is “‘whether the investment, analyzed in terms of its economic reality, constitutes risk capital entirely subject to the fortunes of the corporate venture or represents a strict debtor-creditor relationship’”. SeePage: Previous 1 2 3 4 5 6 NextLast modified: March 27, 2008