Advances to Family Business That Fails Do Not Result in Bad Debt Deduction.

The petitioner made advances during the year in issue totaling $808,000 to a family-owned business that the petitioner was a part owner of.  The petitioner later claimed a bad debt deduction of $808,000 upon not being repaid. The note called for 10 percent interest, but no collateral was required and the line of credit remained unsecured.  The Tax Court determined that the petitioner failed to prove that the advances were loans.  There was no proof of repayment expectation or an intent to enforce collection.  In addition, there was no documentation of the business's credit worthiness.  The petitioner's conduct was inconsistent with that of an outside third party lender.  Also, the petitioner did not prove that the advances were worthless in 2009, the year for which the deduction was claimed.   The business had not filed bankruptcy even by mid-2011.  Thus, no default occurred in 2009 and the court denied the bad debt deduction.  On appeal the court affirmed.  Shaw v. Comr., No. 13-73687, 2015 U.S. App. LEXIS 20563 (9th Cir. Nov. 18, 2015), aff'g., T.C. Memo. 2013-70.