### UNITED STATES COURT OF APPEALS Tenth Circuit Byron White United States Courthouse

1823 Stout Street Denver, Colorado 80294 (303) 844-3157 Patrick J. Fisher, Jr. Elisabeth A.Shumaker Clerk Chief Deputy Clerk September 3, 1997 TO: All recipients of the captioned order and judgme nt RE: 95-9005, Litchfield v. Commissioner July 9, 1997 Please be advised of the following corrections to the captioned decision: There are two corrections on page two of the order and judgment. In the fifth sentence of the second paragraph, the word “l oan” should be changed to “give,” so that the sentence reads: “Petitioner Lit chfield agreed to borrow and give to . . . .” In the first sentence of the thir d paragraph, the word “loaned” should be changed to “gave,” so that the sentence r eads: “In May 1983, Litchfield borrowed $100,000 from a bank and gave it . . . .” Please make the corrections. Very truly yours, Patrick Fisher, Clerk

Susie Tidwell Deputy Clerk* This order and judgment is not binding precedent, e xcept under the

doctrines of law of the case, res judicata, and col lateral estoppel. The court generally disfavors the citation of orders and judg ments; nevertheless, an order and judgment may be cited under the terms and condi tions of 10th Cir. R. 36.3. 

## F I L E D United States Court of Appeals Tenth Circuit 

### JUL 9 1997 

### PATRICK FISHER Clerk UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

C. WAYNE LITCHFIELD and JUDY S. LITCHFIELD,

Petitioners-Appellants,
v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. No. 95-9005 Appeal from U.S. Tax Court (T.C. No. 11136-92)

ORDER AND JUDGMENT *
Before BRORBY, BARRETT, and MURPHY, Circuit Judges.
After examining the briefs and appellate record, th is panel has determined unanimously to grant the parties’ request for a dec ision on the briefs without oral argument. See Fed. R. App. P. 34(f) and 10th Cir. R. 34.1.9. Th e case is therefore ordered submitted without oral argument.-2-

C. Wayne and Judy S. Litchfield petition for review of the Tax Court’s determination of a deficiency on their 1985 federal income tax return. We have jurisdiction under 26 U.S.C. § 7482, and affirm. Simplifying a complicated scenario, the facts are a s follows. In early 1983, Xenerex Corporation and its wholly owned subsidiary , Matrix, owed more than $277,000 in fees to the law firm of Ferguson & Litc hfield, but were unable to pay. Petitioner Wayne Litchfield was a partner of the law firm at the time. Xenerex/Matrix agreed to pay $100,000 on its attorn ey fee account from funds held in escrow by the law firm. Petitioner Litchfi eld agreed to borrow and give to Xenerex/Matrix another $100,000, if Xenerex/Matrix would also pay that $100,000 to the law firm. In return, Xenerex/Matri x agreed to issue stock to Litchfield and give him a “put,” i.e., a contract r ight to require Xenerex/Matrix to repurchase the stock. In May 1983, Litchfield borrowed $100,000 from a bank and gave it to Xenerex/Matrix. The company did not give Litchfiel d a promissory note. Instead, it issued to Litchfield 285,714 shares of restricted common stock and gave him a “repurchase agreement” requiring the company to buy the stock back within 120 days or else pay 12 percent interest on the $100,000. Litchfield assigned the repurchase agreement and stock certifi cates to his bank as collateral for his loan.-3-

The date for Xenerex/Matrix to repurchase the stockwas extended a number of times. Although the company paid some interest to Litchfield’s bank and made a partial payment to Litchfield on the rep urchase agreement, it went bankrupt in September 1985, and Litchfield’s remain ing stock became worthless. Litchfield filed a trade creditor’s claim in the ba nkruptcy proceeding, and was eventually ordered to be paid six cents on the doll ar for his investment. Petitioners claim the transaction outlined above cr eated a debtor/creditor relationship between Litchfield and Xenerex/Matrix, and the loss was deductible on petitioners’ taxes as a bad business debt. The Internal Revenue Service argued, and the Tax Court found, that the transacti on represented a nondeductible short-term capital investment and loss. On appeal, petitioners contend the Tax Court erred when it determined that the loan from L itchfield to Xenerex/Matrix was not deductible as a bad business debt. Whether a bona fide debt existed is a question of f act. The Tax Court’s finding on this point is therefore reviewed for cle ar error. See Estate of Holl v. Commissioner , 54 F.3d 648, 650 (10th Cir. 1995). “[A] factual finding is clearly erroneous when the reviewing court ‘on the entire e vidence is left with a definite and firm conviction that a mistake has been committ ed.’" Id. (quoting United States v. United States Gypsum Co. , 333 U.S. 364, 395 (1948)).-4-

Petitioners argue that the transaction was “a loan with an unorthodox documentation.” See Appellants’ Br. at 19. We are not persuaded. Aft er reviewing the record, we agree with the Tax Court that petitioner’s relationship with Xenerex/Matrix “cannot be characterized as a b ona fide debtor-creditor relationship and that neither the stock certificate s nor the stock repurchase agreement represent evidence of a bona fide debt.” R., Vol. I, Doc. 15 at 25. In support of this conclusion, petitioner’s letter of November 16, 1983, to his bank is most telling. In that letter, petitioner stated th at the price of the Xenerex/Matrix stock on the original put date would enable Xenerex/Matrix to pay its liability to him, but that he wished to delay the put date becau se the market price of the stock was expected to rise to $.75 to $1.25 per share. S ee Ex. 18-R. This is not true creditor language. The Tax Court’s finding is not clearly erroneous. AFFIRMED.

Entered for the Court

James E. Barrett Senior Circuit Judge