                        T.C. Memo. 2008-14



                      UNITED STATES TAX COURT



     DOUGLAS BYNUM, JR. AND SHIRLEY A. BYNUM, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12010-06.            Filed January 28, 2008.



     Douglas Bynum and Shirley A. Bynum, pro sese.

     Susan M. Fenner, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:   The issues for decision are whether

petitioners are entitled to the business bad debt deductions

claimed on their 2000 and 2001 joint tax returns and whether
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petitioners are liable for section 6651(a)(1)1 additions to tax

for failing to timely file their 2000 and 2001 joint tax returns.

                             FINDINGS OF FACT

       In 1976, petitioner Douglas Bynum started, as a sole

proprietorship, an engineering consulting business.        In 1977, he

incorporated the business as Starfire Engineering, Inc. (SEI).

SEI issued both Mr. Bynum and Shirley Bynum 500 shares at $1 per

share.

       Mr. Bynum routinely paid cash for various SEI business

expenses.       When SEI’s business revenues increased, Mr. Bynum used

these funds to pay startup costs for seven other businesses

operated under SEI (i.e., two secretarial services businesses,

created in 1978 and 1980; two tax preparation services

businesses, created in 1979 and 1980; two beauty shops, created

in 1979 and 1983; and a steel fabrication business, created in

1982).       Between 1982 and 1986, Mr. Bynum either ceased operation

of or sold the seven businesses.       Mr. Bynum did not demand or

receive repayment for any of the expenses he paid on behalf of

SEI.       In 1995, Mr. Bynum dissolved SEI.    Petitioners deducted as

business bad debts on their 2000 and 2001 joint tax returns the

expenses Mr. Bynum had paid on behalf of SEI.


       1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code of 1986, as amended, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
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     Pursuant to extensions of time to file, petitioners’ 2000

joint tax return was due October 15, 2001.      Petitioners filed

their joint tax return relating to 2000 on April 15, 2004, and

their joint tax return relating to 2001 on April 30, 2004.

Respondent disallowed petitioners’ business bad debt deductions

and determined additions to tax pursuant to section 6651(a)(1)

relating to 2000 and 2001.

     Petitioners filed their petition with the Court on June 23,

2006, while residing in Montgomery, Texas.

                               OPINION

     We must determine whether the expenses Mr. Bynum paid on

behalf of SEI are deductible business bad debts.      A taxpayer is

entitled to deduct bona fide debts that become worthless within

the taxable year.   Sec. 166(a)(1).     Bona fide debts must arise

from debtor-creditor relationships based upon valid and

enforceable obligations to pay fixed or determinable amounts of

money.   Sec. 1.166-1(c), Income Tax Regs.     A contribution to

capital does not qualify as bona fide debt for purposes of

section 166.    Calumet Indus., Inc. v. Commissioner, 95 T.C. 257,

284 (1990).    The ultimate question is “‘whether the investment,

analyzed in terms of its economic reality, constitutes risk

capital entirely subject to the fortunes of the corporate venture

or represents a strict debtor-creditor relationship’”.      See
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Calumet Indus., Inc. v. Commissioner, supra at 285-286 (quoting

Fin Hay Realty Co. v. United States, 398 F.2d 694, 697 (3d Cir.

1968)).   The names given to documents evidencing the

indebtedness, the presence or absence of a fixed maturity date,

the source of repayments, the right to enforce repayment of the

advance, the intent of the parties, the failure of the

corporation to repay on the due date, and other factors are

considered to determine whether a payment is a contribution to

capital or bona fide debt.   See Tex. Farm Bureau v. United

States, 725 F.2d 307 (5th Cir. 1984); Am. Offshore, Inc. v.

Commissioner, 97 T.C. 579, 602-606 (1991).   No one factor is

controlling, and the determination of whether there is a loan or

a contribution to capital is a question of fact which must be

decided on the basis of all the relevant facts and circumstances.

Calumet Indus., Inc. v. Commissioner, supra at 285.

     The expenses paid on behalf of SEI were not bona fide

loans.2   Mr. Bynum and SEI did not have a debtor-creditor

relationship.   Mr. Bynum certainly paid and substantiated a wide

array of business expenses, but these payments were not loans to


     2
       Pursuant to sec. 7491(a), petitioners have the burden of
proof unless they introduce credible evidence relating to the
issue that would shift the burden to respondent. See Rule
142(a). Our conclusions, however, are based on a preponderance
of the evidence, and thus the allocation of the burden of proof
is immaterial. See Martin Ice Cream Co. v. Commissioner, 110
T.C. 189, 210 n.16 (1998).
                                - 5 -

SEI.    First, there was no valid and enforceable obligation to pay

a fixed or determinable amount of money.     Second, there was no

oral or written agreement establishing a debtor-creditor

relationship.    Third, Mr. Bynum did not demand or receive any

payments from SEI relating to the alleged loans.     Finally, the

expenditures were not structured as, or intended to be, loans.

To keep his business afloat, Mr. Bynum routinely paid a myriad of

typical business expenses.    He was concerned about the survival

of the business, not repayment for the expenses.     In sum, Mr.

Bynum’s payments were contributions to capital, and not bona fide

indebtedness.    Even if the expenditures were bona fide loans,

petitioners would not be entitled to section 166 bad debt

deductions.    SEI was dissolved in 1995.   Petitioners claimed

deductions for the alleged bad debts in 2000 and 2001, yet there

is no evidence that the alleged loans became worthless in those

years.    Accordingly, we sustain respondent’s determination.

       We must also determine whether petitioners are liable for

the section 6651(a)(1) additions to tax.     Section 6651(a)(1)

provides that a taxpayer shall be subject to an addition to tax

for failure to file a timely return, unless it is shown that such

failure was due to reasonable cause and not willful neglect.

Respondent bears, and has met, the burden of production relating

to the section 6651(a)(1) additions to tax and has established
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that petitioners failed to file their 2000 and 2001 returns on

time.   Sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446

(2001).   Petitioners filed their 2000 return, which was due

October 15, 2001, on April 15, 2004, and their 2001 return, which

was due on April 15, 2002, on April 30, 2004.   The untimely

filing was not due to reasonable cause but was the result of

willful neglect.   Petitioners assert that they were unable to

file timely returns because of health problems.   Petitioners

indeed had some health problems, but we are not convinced that

the severity of those problems prevented them from filing timely

tax returns relating to 2000 and 2001.   Accordingly, we sustain

respondent’s determination.

     Contentions we have not addressed are irrelevant, moot, or

meritless.


                                       Decision will be entered for

                                 respondent.
