VHC, Inc. v. Commissioner of Internal Revenue

Record contained sufficient evidence to support Tax Court’s disallowance of taxpayer’s bad-debt deduction that consisted of series of payments from taxpayer-entity to one of taxpayer’s owners that taxpayer construed as loans, where Tax Court agreed with IRS that taxpayer never intended for owner to pay back said alleged loans, and that taxpayer’s payments to owner were not bona fide debts that qualified for bad-debt deduction. Record showed that: (1) owner eventually owed taxpayer $132 million arising out of said payments, and taxpayer only repaid $39 million; and (2) taxpayer eventually wrote off $95 million. Burden for showing right to claimed bad-debt deduction is on taxpayer, and Tax Court could properly find that taxpayer lacked bona-fide debtor-creditor relationship, where: (1) there was disconnect between way taxpayer described alleged loans and how taxpayer and owner treated said payments; (2) taxpayer routinely deferred payment or renewed notes without any receipt of payments; and (3) there were instances that taxpayer did not expect to be repaid unless various other events occurred. Also, taxpayer could not deduct payments to owner as ordinary business expenses, since: (1) taxpayer’s records did not support said claim; and (2) said payments to owner did not ordinarily occur in taxpayer’s paper services industry.