Black Gold Energy Corp. v. Commissioner
United States Tax Court
T, an accrual basis taxpayer, guaranteed certain indebtedness of X Co. During 1984, X Co. defaulted on its obligations, and two of X Co.'s creditors filed suit against T to recover under T's guaranties of X Co.'s indebtedness. In January 1985, T and the creditors entered into settlement agreements. Pursuant to the agreements, in 1985, T made an $ 850,000 payment to one creditor and delivered a $ 3,850,000 note to another creditor.
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T, an accrual basis taxpayer, guaranteed certain indebtedness of X Co. During 1984, X Co. defaulted on its obligations, and two of X Co.'s creditors filed suit against T to recover under T's guaranties of X Co.'s indebtedness. In January 1985, T and the creditors entered into settlement agreements. Pursuant to the agreements, in 1985, T made an $ 850,000 payment to one creditor and delivered a $ 3,850,000 note to another creditor. During 1985, T made a $ 50,000 payment on the note. 1. Held, T did not sustain a bad debt loss in 1984. 2. Held, further, in 1985, T is only entitled to deduct as a…
1Opinion of the Court
Hamblen, Chief Judge:
Respondent determined deficiencies in petitioner’s Federal income tax as follows:
TYE Deficiency
Oct. 31, 1978 . $11,373
Oct. 31, 1979 . 9,119
Oct. 31, 1980 . 42,059
Oct. 31, 1981 . 200,209
Oct. 31, 1983 . 31,020
Oct. 31, 1984 . 143,724
The issues for decision are: (1) Whether petitioner, an accrual basis taxpayer, may claim a deduction for a bad debt loss under section 166 in its 1984 taxable year as guarantor of another’s debts even though petitioner made no payment on its obligation until 1985; and (2) whether petitioner’s delivery of a note in settlement of its guaranty…
2Cases cited11 opinions
- Putnam v. CommissionerSupreme Court of the United States · 1956
- Eckert v. BurnetSupreme Court of the United States · 1931
- Crown v. CommissionerUnited States Tax Court · 1981
- Benjamin A. Stratmore and Helen Stratmore v. United StatesCourt of Appeals for the Third Circuit · 1970
- Martin v. CommissionerUnited States Tax Court · 1969
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