D'Ipollito v. Commissioner ( 1989 )

WILLIAM C. D'IPOLLITO AND ESTHER D'IPOLLITO, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent

D'Ipollito v. Commissioner

Docket No. 27800-88

United States Tax Court

T.C. Memo 1989-400; 1989 Tax Ct. Memo LEXIS 398; 57 T.C.M. (CCH) 1167; T.C.M. (RIA) 89400;

August 1, 1989

---

Held: Petitioners' Motion for Partial Summary Judgment denied.

Joseph A. Lambariello, for the petitioners.

Alan G. Merkin, for the respondent.

---

WHITAKER

MEMORANDUM OPINION

WHITAKER, Judge: By statutory notice dated September 8, 1988, respondent determined a deficiency in petitioners' Federal income tax for the years and in the amounts as follows:

Year	Deficiency
1975	$ 95,869
1976	34,515
1977	5,871
1978	1,966

This case is presently before the Court on petitioners' ^{*400 project. In return for the front money, Swig was to be the exclusive sales agent for the mutual projects and receive commissions on all units sold. Bodziak was to receive a normal builder's profit for its efforts in the association. In addition, Swig's shareholders were to be one-third shareholders in some of the corporations which were set up to hold the buildings during their construction and sale of their units. Bodziak was to own the other two-thirds of these corporations. Through these corporations, Swig's shareholders could share in any profits remaining from the sales of the projects. The association between Swig and Bodziak worked fine initially, but trouble arose when Bodziak failed to meet the obligations of the projects when they came due and failed to pass the first construction loan draws through to Swig. As a result, Swig began to contribute more and more money, often directly to the suppliers in an effort to keep the projects sound. The loss was incurred when the construction mortgage holders accelerated the mortgage maturity dates for nonpayment and took possession of the properties being developed.}

Petitioner argues three grounds for his Motion: (1) that the failure of Bodziak to repay Swig's advances gives rise to a deduction for a bad debt pursuant to section 166; Estate of Graves v. Commissioner, 92 T.C. (June 19, 1989). As a general rule, debt-equity cases must be decided on their own facts. The Third Circuit, to which this case is appealable, has enumerated a number of factors to be considered in making the determination of debt versus equity. .While petitioner's supporting memorandum speaks at some length about the applicability of certain of these factors, the record does not contain sufficient uncontroverted facts to support a conclusion that, as a matter of law, Swig's advances to Bodziak constituted bona fide debt. Neither can we reach such a conclusion with respect to whether Swig's losses are limited by section 165(f) (limiting losses on the sale or exchange of capital assets) or are with respect to the sale or exchange of section 1231 assets. Therefore, petitioners' Motion will be denied.

An appropriate order will be issued.

---

Footnotes

• 1. Esther D'Ipollito is a petitioner only because she filed a joint return with her husband. All further references to petitioner are to William C. D'Ipollito.↩

• 2. Unless otherwise noted, all section references are to the Internal Revenue Code of 1954, as amended and in effect for the years in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩