In Uncategorized on 08/10/2017 at 16:21

William C. Owens and Sharon Pigg Owens, 2017 T. C. Memo. 157, filed 8/10/17, tell the story of William C. (“Wild Bill”) Owens, hard money lender, to The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Implacable, Illustrious, Industrious, Ineffable, Indefatigable, Ineluctable, Incontrovertible, and Irrefutable Foe of the Partitive Genitive, Old China Hand and Master Silt Stirrer, Judge Mark V. Holmes.

BTW, Judge Holmes loves real estate wheeling and dealing. And Wild Bill is his kind of guy. And if you’ve forgotten what a hard money lender is and does, see my blogpost “The Good Excuse Sweepstakes – Not a Winner,” 11/15/12.

Wild Bill took over the family money-lending business despite his B. A. in literature, and ran both the business and his own lending operation. He’d lend to wildcatters who told him a good story, and did well, until he lent to a commercial laundry operator personally (not through the family business) and got taken to the cleaners (sorry, guys).

The launderers had the biggest operation in The City by the Bay, doing hotels and hospitals. They had water rights, which are gold in CA (“Whiskey is for drinkin’ and water is for fightin’ about,” as Mark Twain said). But they had to expand, and the conventional lenders said “Nix.” Wild Bill lent and lent, until he was $16 million into the deal.

He finally had to subordinate to a mortgage company he found to bail out the launderers. You can guess the rest, but I’ll tell you anyway, because I’m a garrulous, loquacious old man, and “the home folks have long ago learned to run when we begin…so we have to spin our yarns to the stranger within our gates,” as a far better writer than I put it.

The launderer finally craters in the 2008 tsunami, so Wild Bill takes a business bad debt deduction.

IRS claims Wild Bill isn’t in the lending business, his family business is.  Judge Holmes examines the cases and finds Wild Bill, both personally and through his personally-funded grantor revocable disregarded trust, made more than enough loans during the years at issue, both to the launderers and unrelated others who could tell him a good story, to be in the hard money business.

Wild Bill had the family business employees keep both the business and his personal records. So what, asks Judge Holmes; why hire extra staff? Note neither he nor IRS ask if Wild Bill paid the employees for doing his personal work, and, if not, whether that was a taxable benefit to Wild Bill (and Sharon).

The deal with the launderers looked like it had an equity kicker, so maybe the loans were equity and not debt. But the documentation on that score wasn’t of the best (maybe sometimes ambiguity beats clarity), and anyway there are enough indicia of debt to show that Wild Bill and the launderers papered the debt well enough to get by.

Finally, when the launderers went belly-up as aforesaid, Wild Bill filed a proof of claim in the ensuing bankruptcy. IRS claims maybe so the debt didn’t go bad that year, as Wild Bill was hoping for a payout.

“Finally, the Commissioner argues that because Owens filed a proof of claim, he must have expected at least some recovery.  While a proof of claim may indicate that a taxpayer had some hope for recovery, we are reluctant to determine the outcome of this case based on Owens’s steps to secure his place in the order of distribution.  ‘No single factor is conclusive as there are no absolutes in this area.’ Am. Offshore, Inc. v. Commissioner, 97 T.C. at 595.”  2017 T. C. Memo. 157, at p. 42.

Wild Bill wins.

Takeaway- A B. literature may help you tell a good story, but the paper is the thing…whether it’s ambiguous or precise.

And a Taishoff “Good Job” to G. Haislet, Esq.,  and M. Beuselinck, Esq., Wild Bill’s legal team.

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