- 5 -
SEI. First, there was no valid and enforceable obligation to pay
a fixed or determinable amount of money. Second, there was no
oral or written agreement establishing a debtor-creditor
relationship. Third, Mr. Bynum did not demand or receive any
payments from SEI relating to the alleged loans. Finally, the
expenditures were not structured as, or intended to be, loans.
To keep his business afloat, Mr. Bynum routinely paid a myriad of
typical business expenses. He was concerned about the survival
of the business, not repayment for the expenses. In sum, Mr.
Bynum’s payments were contributions to capital, and not bona fide
indebtedness. Even if the expenditures were bona fide loans,
petitioners would not be entitled to section 166 bad debt
deductions. SEI was dissolved in 1995. Petitioners claimed
deductions for the alleged bad debts in 2000 and 2001, yet there
is no evidence that the alleged loans became worthless in those
years. Accordingly, we sustain respondent’s determination.
We must also determine whether petitioners are liable for
the section 6651(a)(1) additions to tax. Section 6651(a)(1)
provides that a taxpayer shall be subject to an addition to tax
for failure to file a timely return, unless it is shown that such
failure was due to reasonable cause and not willful neglect.
Respondent bears, and has met, the burden of production relating
to the section 6651(a)(1) additions to tax and has established
Page: Previous 1 2 3 4 5 6 Next
Last modified: March 27, 2008