Howard S. Bugbee v. Commissioner

34 T.C.M. 291 (1975)

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Nature of the Case

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Facts

Bugbee (P) was president and majority stockholder of Poop Deck, Inc. that operated a beer parlor in Hermosa Beach, California. P first met Billings as his parlor in 1957. Based on an eventual friendship, P began to advance money to Billings for Billings' alleged business ventures. Eventually, the sum got to $19,750 and was evidenced by 11 notes. The notes were unconditional, unsecured, demand notes signed by Billings from 1958 to 1960. The notes provided for interest at the rate of 6%. No interest was ever paid, and in fact, Billings never paid any of the principal either. Billings was unemployed when these advances were made, but P knew of this. At no time did P investigate nor did P have personal knowledge of Billings' financial position. Billings used some of the funds for the investigation of personal business ventures, but most were used for living expenses. In 1966, P and his spouse, who was aware of the loans to Billings, were divorced but there was not real disposition in that proceeding related to these notes even though some of the monies advanced were from P's wife. Through 1967, P had sporadic contact with Billings and made requests for repayment without success. P, on his 1966 tax return, reported a short-term capital loss of the monies loaned to Billings. The IRS disallowed the loss; there was no debtor-creditor relationship, and the amount of the loans had not been established and there was no proof that the money loaned was P's property.