Case: Denial of Worthless-Debt Deduction for Cancelled Intercompany Loans Was Proper (9th Cir.)

The tax court’s denial of a worthless-debt deduction for cancelled intercompany loans was proper, held the U.S. Court of Appeals for the 9th Circuit, affirming the tax court’s decision. Taxpayer, an individual, transferred millions of dollars between his business entities between 2007 and 2010, characterizing them as loans. On December 31, 2010, Taxpayer canceled many of these purported loans and claimed a short-term capital loss of nearly $87 million due to a nonbusiness “bad debt write off” on his 2010 tax return. The IRS disallowed the deduction and issued deficiency notices. The tax court ruled mostly in the IRS’s favor, ...