Brief Fact Summary. Petitioner loaned $19,750 to a friend who he thought would use the money to turn an idea into a successful business venture. The friend did not succeed and Petitioner claimed the loan as a short-term capital loss on his tax return.
Synopsis of Rule of Law. In order to establish a debtor-creditor relationship, a bona fide debt must exist based on a valid and enforceable obligation to pay a fixed and determinable amount of money.
Issue. Was Petitioner entitled to claim the loss as a short-term capital loss?
Held. Judge Sterrett issued the opinion for the Tax Court in holding that Petitioner was entitled to claim the loss because a valid debtor-creditor relationship existed.
Discussion. The Tax Court focuses on determining the intent of the parties and notes that facts illustrate that both parties intended the money to be a loan that was to be repaid. Petitioner made the loans because he thought Billings would use them to succeed in business and he expected to be repaid. Further, he at times made demand for repayment. There were no indications that repayment was contingent upon Billings’ success.