Attorney-at-Law

“NO GOOD DEED” -PART DEUX

In Uncategorized on 07/10/2014 at 18:57

You Know the Rest

Repeating a comment from my blogpost “No Benefits, No Burdens, No Deduction”, 12/9/13, I quote Oscar Wilde: “No good deed goes unpunished.”

In my abovecited blogpost, Lourdes Puente got the message. This time, Judge Chiechi has the message for Ronald R. Dickenson and Shirley F. Dickenson, 2014 T. C. Memo. 136, filed 7/10/14. Shirley F. is a non-participant, but she gets the hit along with Ron.

Ron is a big-hearted consultant who routinely makes loans to his employees, he says, but he never bothers with notes, repayment schedules, interest or events of default. He claims he hired back a former employee, ol’ Terry, and fronted ol’ Terry $33K to tide him over while he moved back to Ron’s bailiwick.

Ron sent ol’ Terry a billet doux which stated, in pertinent part as my high-billing colleagues like to say: “Terry… I want to tell you once again, I am quite excited to get you over here and get our operation started together. * * *From my initial marketing efforts, you can fulfill the areas I cannot achieve by myself * * *. Anyway, I want to reiterate again my commitment to you financially, and what I would expect from you in paying me back. I am not going to prepare a note, or any form of contract, because I trust you to be honest about this matter, just like all of the other people I have loaned money.

“Anyway, I agree to loan you money to get settled in over here, and help you out financially as long as I see our new company is working, and you are going to work as hard as you did for me the last time we worked together.” 2014 T. C. Memo. 136, at p. 4.

You can guess the rest. Ol’ Terry rips off Ron (he claims), and absquatulates. Ron claims a business bad debt, but sued ol’ Terry and the case wasn’t concluded (Ron lost, of course) for two years after the year at issue, when he claimed the deduction.

There’s no unconditional obligation to repay, none of the usual indicia of a loan (note, interest, collateral, fixed repayment schedule), and the ability of the “borrower” to repay is dubious in this case. Ron himself testified that ol’ Terry was up against it when Ron sent him the $33K.

Ron was pro se, of course, and the trial record shows nothing that would indicate either a business, or even a non-business, bad debt.

The story is in a footnote, as Tax Court Judges tend to be ex-law review types, of whom a bona fide occupational qualification is the worship of footnotes.

Here it is: “Assuming arguendo that Mr. Dickinson had satisfied his burden of establishing that the … funds in question constituted loans by him to [ol’ Terry] and thus bona fide debts for purposes of sec. 166, on the basis of the record before us, we would find that he has failed to carry his burden of establishing that those alleged bad debts constitute bad debts that are not nonbusiness bad debts. See sec. 166(d); sec. 1.166-5(b), Income Tax Regs. In this connection, Mr. Dickinson has failed to show that the alleged bad debts were created or acquired in connection with a trade or business of his or that the losses from the worthlessness of the alleged bad debts were incurred in a trade or business of his. See sec. 166(d); sec. 1.166-5(b), Income Tax Regs.

“In addition, assuming arguendo that Mr. Dickinson had satisfied his burden of establishing that the … funds in question constituted loans by him to [ol’ Terry] and thus bona fide debts that are not nonbusiness bad debts, on the basis of the record before us, we would find that he has failed to carry his burden of establishing that those alleged nonbusiness bad debts became either wholly or partially worthless in taxable year 2007, the year for which petitioners claimed the deduction for those alleged business bad debts. In this connection, Mr. Dickinson has failed to show any identifiable events that could have formed the basis for his having reasonable grounds as of the end of 2007 for his abandoning any hope of recovering the …  funds in question. In fact, the record establishes that Mr. Dickinson continued … to prosecute the Dickinson lawsuit in order to recover those funds until the Marion Circuit Court dismissed that lawsuit….” 2014 Tc. Memo. 136, at p. 15, footnote 7. (Citation omitted).

One wonders if Ron had an attorney for the Marion County lawsuit. He needed one for this case, if for no other reason that to warn him.

 

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