HOWARD S. BUGBEE V. COMMISSIONER
34 T.C.M. 291 (1975)
NATURE OF THE CASE: This was a dispute over the allowance of a short-term capital loss
for a personal debt.
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 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.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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