# Jin tbe Wniteb ~tates Qtourt ofjf 

# eberal Qtlaims
No. 17-1174T (Filed: April 1, 2020)


### **********************************

ALI TAHA, on behalfofhis deceased brother and his brother's wife,
Plaintiffs,

v.
UNITED STATES,

Defendant. 

### ********************************** ) ) ) ) ) ) ) ) ) ) ) Claim for tax refund; tax paid on shareholder'sportion ofSubchapter S corporation's income that was reported but
never received by the shareholder; physical-delivery rule for refund claims; exceptions to that rule, 26 U.S.C. § 7502, not satisfied; seven-yearperiod of limitation for business bad debt claims; 26 U.S.C. § 651 l(d)(l)

Ali M. Taha,

### prose, Bradenton, FL, on behalfofhis deceased brother, Mohamad E. Taha, and his brother's wife, SanaaM. Yassin, United Arab Emirates.

Elizabeth A. Kanyer, Trial Attorney, Court ofFederal Claims Section, Tax Division, United States Department ofJustice, Washington, D.C., for defendant. Withher onthe briefs
were Richard E. Zuckerman, Principal Deputy Assistant Attorney General, Tax Division, and David 

### I. Pincus, Chief, Court ofFederal Claims Section, Tax Division, United States Department ofJustice, Washington, D.C.

OPINION AND ORDER
LETTOW, SeniorJudge.

Plaintiffs filed this action against the United States ("the government") seeking a refund offederal income taxes from the 2002, 2003, and 2004 tax years. Following dismissal by this court ofplaintiffs' claims for lack ofsubject-matterjurisdiction and a subsequent decision by the United States Court ofAppeals for the Federal Circuit affirming dismissal for tax years 2002 and 2004 and remanding respecting tax year 2003, at issue in this remand is plaintiffs' taxrefund claim for the 2003 tax year. 

### See generally Taha v. UnitedStates, 137 Fed. CL 462 (2018) 

### ("Taha I"), 

### aff'dinpart, vacatedinpart, andremanded, 757 Fed. Appx. 947 (Fed. Cir. 2018) 

### ("Taha II"). The Federal Circuit directed this court onremand to resolve three material factual disputes pertaining to plaintiffs' 2003 refund claim: (1) whether plaintiffs had properly filed a tax refund claim for tax year 2003, and ifso, (2) whether this refund claim was timely, and (3) whether the IRS disallowed the 2003 claim. 

### Taha II, 757 Fed. Appx. at 952. To address these issues, the court held a two-day trial in Tampa, Florida on December 9 and 10, 2019. Post-trial briefing was completed on March 23, 2020, and the case is nowready for disposition.FACTS 1
Plaintiffs, Mohamad Taha and his wife, SanaaYassin, acting through Ali Taha as their representative, initially brought suit seeking a tax refund of$14,177 for federal income tax paid during the 2002 and 2003 tax years. See generally Transfer Complaint ("Comp!."), ECFNo. 4. 2 Plaintiffs' suit was first filed in the United States District Court for the Middle District ofFlorida in May 2017, butthe District Court ordered that the case be transferred to this courtbecause it lackedjurisdiction overplaintiffs' claims. See District Court Transfer Order, No. 8: 17-1094-T33AAS (M.D. Fla. June 13, 2017), ECFNo. 1. The complaint was transferred on September 18, 2017. See Comp!. On January 30, 2018, defendant filed a motionto dismiss all claims pursuant to RCFC 12(b)(l) and 12(b)(6), ECF No. 12, and this court granted the motion to dismiss on April 

### !0, 2018, finding that it also lackedjurisdiction to hearplaintiffs' claims, see Taha I, 137 Fed. CL at 469.

The Federal Circuit affirmed-in-part, vacated-in-part, and remanded the case backto this court onDecember 14, 2018. Taha II, 757 Fed. Appx. at 954. In aper curiam decision, the Federal Circuit affirmed that this court lacked subject-matterjurisdiction overthe 2002 and 2004 tax refund claims because plaintiffs "didnotfile their tax refund suit within the statutorilyprescribed two-year period from the date the [Internal Revenue Service ("IRS")] first mailed notices ofdisallowance for those claims." Id. at 951. The Federal Circuit, however, remanded the case to this court to make factual findings related to the 2003 tax refund claim. Id. at 954. This opinion addresses the remanded issues.

The 2003 taxrefund claim stems from Mr. MohamadTaha's shareholding in Atek Construction, Inc. ("Atek"). Atek was a Subchapter S Corporationformed in 1996 by Mr. Ali Taha and his nephew, Mr. Eyad Khalil. See Tr. 120:11-18; 121:6-8 (Test. ofAli Taha).3 Atek

1The recitation offacts constitutes the court's principal findings offact in accord with Rule 52(a) ofthe Rules ofthe Court ofFederal Claims ("RCFC"). Otherfindings offact and rulings on questions ofmixed fact and law are set out in the analysis.

2Mr. Mohamad Tahapassed away in 2007. See Pls.' Post-Trial Brief("Pls.' Br.") at 1, ECFNo. 81. The government argues that Mr. Ali Taha cannot serve as the representative for Mr. Mohamad Tahabecause Mr. Ali Tahahas not demonstrated that he has been appointed as the personal representative or executor ofMr. Mohamad Taha's estate. Def.'s Post-Trial Brief. ("Def.'s Br.") at 39, ECFNo. 85. The government is correct as to this point, see RCFC 17(a)(l), butbecause the court today finds thatplaintiffs are not entitled to relief, this argument is moot. Further, the government does not "objectto [Mr. Ali Taha's] representation of [Ms.] Yassin as to the full amount ofthe refund claim for tax year 2003" under RCFC 83.l(a)(3). See Def.'s Br. at 39 n. 23. That rule states that "[a]n individual who is not an attorney mayrepresent oneselfor a member ofone's immediate family." RCFC 83.l(a)(3). Accordingly, Mr. Ali Tahamay serve as Ms. Yassin's representative.

3The transcript ofthe trial will be cited as "Tr. [page]:[line]." Defendant's exhibits will be cited as "DX [Number] at [Page Number]." Plaintiffs' exhibits at trial were admitted in
2was a construction companythat bid on and completed work for various public projects, often working with subcontractors for these projects and obtaining bonds from surety companies for eachproject. See Tr. 125:21-25; 126:13-22 (Taha). WhenAtek was formed, Mr. Ali Taha and Mr. Khalil were equal owners, each with 50%. Tr. 121 :6-11 (Taha). In 2002, following Mr. Mohamad Taha's arrival in the United States, Mr. Ali Taha gave ten percent ofhis shares to his brother, Mr. Mohamad Taha, to help him financially because he was unemployed. See Tr. 123:18 to 124:1; 132:1-3 (Taha). Mr. Mohamad Taha did notpay any money or perform any services for these shares. Tr. 124:16-21 (Taha). Mr. Ali Taha also gave five percent ofhis shares inAtekto another brother. Tr. 124:24 to 125:2 (Taha). Thus, by 2002, Atek was a family-owned company with four shareholders: Mr. Khalil with 50% percent, Mr. Ali Tahawith 35%, Mr. Mohamad Tahawith 10%, and Mr. Ali Taha's other brother with 5%. See Tr. 125:6- 18 (Taha).

Fortax years 2002 and 2003, Atek reported ordinarybusiness income of$839,682 and $745,962 respectively. DX 9 at 1 (Atek's Form 1120S for 2002); DX 10 at 1 (Atek's Form 1120S for 2003). Because Atek was an S corporation, Atek's income was consideredpassthrough income, meaning its shareholders were required to report theirpro rata share ofAtek's income ontheir own individual income tax returns. See 26 U.S.C. 

### § 1366. Therefore, Mr. Mohamad Tahareported income from Atek of$83,968 for tax year 2002 and $74,566 for tax year 2003. See PX Bl at 37 (Mr. Mohamad Taha's and Ms. Sanaa Yassin's Form 1040 for 2002); PX B2 at 43 (Mr. Mohamad Taha's and Ms. Sanaa Yassin's Form 1040 for 2003). Mr. Mohamad Taha and Ms. Yassin paidtaxes onthis income inthe amount of$8,573 for 2002 and $5,604 for 2003. DX 1 at2; DX 2 at 2. Plaintiffs in this case are seeking a refund for these taxes, totaling $14,177. 4

While Mr. Mohamad Taha and Ms. Yassin paid taxes onthis income, they neverreceived distributions from Atek equal to the full amount they had to report as income; instead, Atek retained most ofthis money to sustain the company's operations. See Tr. 129:14-20 (Taha). By the end of2003, plaintiffs had received only $20,000 in distributions from Atek. See Tr. 142:20- 22 (Taha). For each ofthese two years, plaintiffs received a "promissory note" from Atek, drafted and signedby Mr. Ali Taha, that included Atek's promise to payplaintiffs and listed the amount owed to plaintiffs from their profit distributions retained byAtek as well as an interest rate of 10% to be applied at some unspecified future date ofpayment. See generally PX Cl (2002 Promissory Note); PX C2 (2003 PromissoryNote). 5

subsections and were paginated as a single PDF document. As such, plaintiffs' exhibits will be cited as "PX [Letter][Subsection] at [PDF Page Number]."

4Because only plaintiffs' 2003 claim remains at issue, plaintiffs can onlyrecover up to $5,604, the amount plaintiffs paid in income taxes for that year.

5The promissory note for 2002 listed the amount owedto plaintiffMohamad Taha as being the full amount plaintiffs claimed for their income in their 2002 individual incometax return, $84,935. This is not the correct amount, however, because plaintiffs received $20,000 in distributions from Atek. Thus, the amount owedto plaintiffs for 2002 should be reduced by 3Inthe fall of2004, Atek experienced financial difficulties due to lack ofpayments from various project owners for whom Atek worked. Tr. 16: 17-19 (Taha). Atek's creditors sought payment from Atek, and when Atek was unable to make these payments, the creditors then soughtpayment from the bonding companies securing Atek's various projects. See Tr. 16:19-21 (Taha). The bonding companies immediately took over the operations ofAtek and filed lawsuits against Atek and its primary shareholders. Tr. 16:22-25 (Taha). In at least one lawsuit, the court enteredjudgment infavor ofthe bonding company against Atek. See generally DX 26. Because Mr. Mohamad Tahahad not received any payments regarding the undistributed income, he later soughtto recover his undistributed amounts via a bankruptcy action that hadbeenbrought by Mr. Khalil, another shareholder, in 2006. See PX H2 at 92. Mr. Mohamad Tahawas unsuccessful in his claim for paymentbecause the bankruptcy court found that there were insufficient funds to distribute to creditors. See 

### id. Therefore, 

### Mr. Mohamad Taha was never paid the retained shareholder distributions.

Mr. Ali Tahahelped Mr. Mohamad Taha and Ms. Yassin prepare both oftheir original income tax forms, Form 1040, for 2002 and 2003, and additionally helped to prepare their amended income tax forms for 2002 and 2003, Form 1040X. See Tr. 57:19-20; 58:25 to 59:1; 78:20-25 (Taha). Onplaintiffs' amended tax return for 2003, plaintiffs claimedthey were owed
a refund of$5,604 for "[i]ncome from Schedule K-1 as shown on Schedule E not collected-loss because Atek Construction ceased business." PX G2 at 80-81. Plaintiffs made a similarrefund claim in their 2002 amended tax return. See PX GI at 78-79. On November 9, 2007, Ms. Yassin signed boththe Form 1040X for tax year 2002 and Form 1040X for tax year 2003. PX GI at 78; PX G2 at 80. Mr. Ali Tahatestified that "both [the] 2002 and 2003 [amended returns] were filed simultaneously

... and taken to the post office either bymyselformy
- whoever at the time, most likely myself, because plaintiffs didn'thave transportation, [ and] they didn't know where the post office [wa]s." Tr. 79:8-15 (Taha). The IRS received plaintiffs' Form 1040X for tax year 2002 onNovember 29, 2007, see DX 1 at 2, butthe IRS's records do not reflect ever having received plaintiffs' Form 1040X for tax year 2003, see DX 2 at 2.


### Mr. Taharecalls that based onhis experience, the amended returns for each year were likely mailed in separate envelopes, buthe could nottestify affirmatively how the 2002 and 2003 returns specifically were mailed. See Tr. 79:21-25 (Taha). Because the IRS's records do not reflect ever having received the 2003 amended 1040X, the IRS never disallowed this refund claim.6 Following a series ofletters exchanged betweenplaintiffs and the IRS after the IRS disallowed plaintiffs' 2002 claim, see generally PX HI; PX H2; PX II; PX 12, plaintiffs filed this suit.

$20,000, to $64,935. Mr. Ali Tahatestified that he was aware ofthis error, but simply never revised the promissory note. See Tr. 143: 14-21 (Taha).

6Whiie the Federal Circuit in its opinion identified the issue ofwhether the IRS disallowed the refund claim for 2003 as a dispute for this court to resolve, the government does not contend that the claim was ever disallowed. See Def.'s Br. at 2. 4

### STANDARDS FORDECISION

A. Jurisdiction in Tax RefundSuits

Pursuant to the Tucker Act, this court hasjurisdiction over claims seeking recovery ofan internal revenue tax alleged to have been erroneously or illegally assessed or collected. See, e.g., Hinckv. UnitedStates, 64 Fed. Cl. 71, 75 (2005), ajf'd, 446 F.3d 1307 (Fed. Cir. 2006), aff'd, 550 U.S. 501 (2007). This court'sjurisdiction over these cases runs concurrently with that of district courts. See 28 U.S.C. 

### § 1346(a)(l). The Internal Revenue Code (the "Code") dictates that a plaintiffmust satisfy additional prerequisites to establish this court'sjurisdiction in these types ofcases. Primarily, before a plaintiffcan bring a tax refund suit, a claim must first be filed with the IRS in accord with relevant statutory and regulatory provisions set out inthe Code. See 26 U.S.C. § 7422(a) ("No suit orproceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been etrnneously or illegally assessed or collected

... until a claim for refund or credit has been duly filed with the Secretary, according to the provisions oflawin that regard, and the regulations ofthe Secretary established in pursuance thereof."). 7

Mostrelevant here are provisions ofthe Code regarding the timing ofrefund claims. I.R.C. § 6511 prescribes the main timing limitations for most refund claims. Under Subsection 6511(a), for taxes for which the taxpayer is required to file a return, a"[c ]!aim for credit or refund ofan overpayment ofany tax

... shall be filed bythe taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever ofsuch periods expires the later." When the refund claim involves bad debts or wotthless securities, the limitationperiod for making a claim is longer. Forthese types ofclaims, i.e., claims relating to debt that became worthless under I.R.C. § 166 or § 832(c) or losses from worthlessness ofa security under I.R.C. § 165(g), the period for filing a refund claim "shall be 7 years from the date prescribed by lawfor filing the return for the year withrespect to which the claim is made." See I.R.C. § 6511 (d)(l). These timing limitations cannot be extended on equitable grounds. See Taha I, 137 Fed. Cl. at 466 (citing UnitedStates v. Brockamp, 519 U.S. 347,352 (1997); Cooper
v. Commissioner, 718 F.3d 216,225 (3d Cir. 2013)).

B. Business BadDebtandSection 6511

For an individual taxpayer to receive the benefit ofthe extended refund filing period under Subsection 6511(d) for bad debt, the taxpayer mustprove that the deduction is appropriate under I.R.C. § 166. Subsection 166(a) allows a deduction of"any debt which becomes worthless in the taxable year." I.R.C. § 166(a)(l). The Tax Code itselfand Treasury Regulations further define the qualifications for this deduction. First, "only a bona fide debt qualifies for purposes of section 166," Treas. Reg. § 1.166-1( c), and"[a] bonafide debt is a debt which arises from a debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed or determinable sum ofmoney," id. Second, Paragraph 166(d)(l)(A) explains that for a taxpayer other than a corporation, this deduction does not apply to "nonbusiness debt." I.R.C. §

7Future references to the Internal Revenue Code will be to "I.R.C." rather than to "26 U.S.C." 

### 5

### !66(d)(l)(A). Nonbusiness debt is defined in the Code as "adebt other than

... a debt created or acquired

... in connection with a trade orbusiness ofthe taxpayer; or
... a debt the loss from the worthlessness ofwhich is incurred inthe taxpayer's trade orbusiness." I.R.C. §§ 

### 166(d)(2)(A)-(B). Lastly, as implicated by the text ofthe statute, the taxpayer must show that the debt is "worthless" and identify the taxable year in which it became worthless. See I.R.C. § 

### !66(a)(l).
ANALYSIS



### A. Filing of the 2003Amended Tax Return

At issue initially on remand is whether plaintiffs filed their 2003 amended tax return. Plaintiffs argue that they did so, and to support this allegation, plaintiffs presented testimony regarding circumstantial evidence ofmailing, see, e.g., Tr. 79:8 to 80:2, as well as a copy ofthe original 2003 Form I040X they allege they filed, see PX G2. Inresponse, the government presented IRS records ofplaintiffs' filings, see DX 2, which do not reflect the IRS ever having received plaintiffs' 2003 Form 1040X, and the government asserts thatthese records are "presumed to betrue, accurate, and correct," Def.'sBr. at 15 (quoting !shier v. UnitedStates, 115 Fed. CL 530, 537-38 (2014); Harris v. United States, 44 Fed. CL 678,682, ajf'd, 232 F.3d 912 (Fed Cir. 2000)). Additionally, the government contends that plaintiffs have failed to demonstrate compliance with the "physical-delivery rule," and that the only exceptions to this rule, I.R.C. §

### 7502, do not apply to plaintiffs' 2003 amended return. Def.'s Br. at 14-16. The government's arguments are persuasive. Plaintiffs here cannot demonstrate that they filed an amended tax return Form 1040X for 2003, and thus plaintiffs have not satisfied their burden of establishing this court'sjurisdiction in light ofI.R.C. §

### 7422.
The physical-delivery rule is a well-established tenet oftax law-adocument is not considered as filed until it is actually delivered to the IRS. See Treas. Reg. § 

### 301.7502-l(e)(2);
see also Miller v. UnitedStates, 784 F.2d 728, 730 (6th Cir. 1986) (quoting UnitedStates v. Lombardo, 241 U.S. 73, 76 (1916)). To account for vagaries ofthe postal service and to mitigate the harshness ofthe physical-delivery rule, some courts, decades ago, began to apply the "common-lawmailbox rule," see Baldwin v. UnitedStates, 921 F.3d 836, 839-40 (9th Cir. 2019), cert. denied, 589 U.S.~' 140 S. Ct. 690 (2020), that is, "thejudicially-created presumption that material mailed is material received," Miller, 784 F.2d at 730. "Underthe common-law mailbox rule, proofofproper mailing-includingbytestimonial or circumstantial evidence-givesrise to a rebuttable presumption that the document was physically delivered to the addressee in the time such a mailing would ordinarily take to arrive." Baldwin, 921 F.3d at 840. Congress addressed the issue in 1954 when it passed I.R.C. §

### 7502, creating an exception to the physical-delivery rule for documents delivered byU.S. mail. See id. Under Paragraph 7502(a)(l), a claim is considered filed on its date ofpostmark, evenifit is received bythe IRS after the applicable deadline. This exception, however, expressly contemplates the document's eventual receipt bythe IRS. See I.R.C. § 

### 7502 (a)(l). Thus, to account for situations where the document is never received, Section 7502 also contains additional exceptions to the physical6delivery rule for those documents mailedviaregistered or certified mail. 

### See I.R.C. § 7502(c). 8 Subsection (c) specificallyprovides that for documents sent byregistered mail, "suchregistration shall be primafacie evidence that the

... document was delivered to the agency." I.R.C. § 7502(c)(1)(A). Following the passage ofSection 7502, "coutis ofappeals reached conflicting decisions
as to what effect, ifany, the statute had on application ofthe common-law mailbox rule." 

### See Baldwin, 921 F.3d at 841 (collecting cases from varying circuits interpreting Section 7502). Decisions from this court, though, have longheldthat the common-lawmailbox rule no longer applies and that Section 7502 provides the exclusive exceptions to the physical-delivery rule. 

### See, e.g., Davis v. UnitedStates, 43 Fed. Cl. 92, 94 n.4 (1999), 

### ajf'd, 2000 WL 194111 (Fed. Cir. Feb. 16, 2000) (citing 

### Ygnatowiz v. UnitedStates, 1997 WL 625502, at *4 n.8 (Fed. Cl. Aug. 5, 1997),

### Mcilvaine v. UnitedStates, 23 Cl. Ct. 439,442 (1991), and 

### Favell v. UnitedStates, 22 CL Ct. 571,576 (1991), among others). Seekingto clarify the confusion causedbythe circuit split, the Treasury Department amended its regulation interpreting Section 7502 to make explicitthat taxpayers can no longertumto the common-lawmailbox rule for relief. 

### See TD 9543, 76 Fed. Reg. 52561-01 (Aug. 23, 2011), 2011 WL 3664239, 2011-40 I.R.B. 470. The regulation provides that, for all documents mailed after September 21, 2004, the exceptions under Section 7502 are the sole exceptions to the physical-delivery rule-"No other evidence ofa postmark or ofmailing will be primafacie evidence ofdelivery or raise a presumptionthatthe document was delivered." Treas. Reg. §§ 301.7502-1(e)(2)(i), (g)(4).

Inthe Federal Circuit's decision on appeal inthis case, the court cited to

### Jones v. United States, 226 F.2d 24, 27 (9th Cir. 1955), for the propositionthatplaintiffs here "maybe able to showthat the claim was timely mailed." 

### Taha II, 757 Fed. Appx. at 952 n.3. While

### Jones has notbeen explicitly overruled, andremains onlypersuasive authority to this court, the Ninth Circuitrecently reconsidered the holding of

### Jones in

### Baldwin, evaluating the effect ofthe Treas. Reg.§ 301.7502-l(e)(2)(i). In

### Baldwin, the Ninth Circuit effectively overturnedthe holding in 

### Jones, applying 

### Chevron, US.A., Inc. v. NaturalRes. Def Council, Inc., 467 U.S. 837 (1984), and

### National Cable & 

### Telecomms. Assoc. v. BrandX Internet Servs., 545 U.S. 967 (2005), and concluding that Treas. Reg.§ 301.7502-l(e)(2) is valid and a "reasonable interpretation ofthe governing statute[, I.R.C. § 7502]." 921 F.3d at 843.

Giventhese precedents, the court is left with little room for digression. For plaintiffs' 2003 amendedtax return Form 1040X to be considered filed, plaintiffs mustbe able to showthat the form was actually delivered to the IRS orthatthey otherwise metthe requirements ofI.R.C. § 7502. The IRS's records for Mr. Mohamad Taha and Ms. Sanaa Yassin for 2003, presumedto be accurate, do not reflect that the IRS ever received plaintiffs' 2003 Form 1040X. 

### See DX 2. Plaintiffs have not provided evidence that the form was mailed by registered or certified mail, or that they meet any ofthe stated exceptions ofSection 7502. Plaintiffs insteadurge the courtto lookto their testimonial evidence ofmailing, 

### see Pis.' Br. at 31, butthe court is foreclosed from applying the common-lawmailbox rule, considering the language ofTreas. Reg.§ 301.7502-

8Section 7502 includes other exceptions to the physical delivery-rule, including for example, for documents mailed with private delivery services. 

### See, e.g., I.R.C. § 7502(f). These exceptions are notpotentially applicable to this case and therefore are not addressed. 71(e)(2). Absent the requisite evidence showing that they fall within the exceptions ofSection 7502, plaintiffs cannot showthat they filed a claim for refund with the IRS as required for jurisdiction inthis court pursuantto I.R.C. § 7422. Therefore, the court does not have subjectmatterjurisdiction overplaintiffs' 2003 tax refund claim.

B. 

### Inapplicability of aBusiness BadDebt Claim

Even ifplaintiffs could showthat they filed their 2003 amended tax return, plaintiffs still would have the burden ofshowing that this filing was timely. It is likely that plaintiffs' 2003 amended tax return would have beenreceived by the IRS around the same time their 2002 amended tax return was received, ifthey were indeed mailed at the same time. Plaintiffs' 2002 amended tax return was received, according to the official IRS record, onNovember 29, 2007. 

### See DX 1 at 2. Thus, assuming that plaintiffs' 2003 claim would have beenreceived around this
same time, it would have beenuntimely because it wouldhave beenreceived well beyond the three-year limitation ofI.R.C. § 651 l(a).
Plaintiffs contend that I.R.C. § 651 l(a) is inapplicable and instead submitthat their claim for refund is timely because it falls within the seven-yearperiod oflimitation for business bad debts under I.R.C. § 6511 (d)(l). Pis.' Br. at 11. The government counters that plaintiffs are not entitledto the extendedperiod oflimitation for bad debts because plaintiffs "cannot demonstrate that the taxedbutundistributed S corporation shareholder income is debt, that the purported debt is business debt, or thatpurported debt became worthless intax year 2004," Def.'s Br. at 25 (emphasis omitted), as required under I.R.C. §§ 166,651l(d).
Plaintiffs have not met their burden ofprovingthey are entitled to the seven-year limitationperiod. Section 166 defines bad debt for the purposes ofthe extended limitation period ofSection 6511. Under Section 166, plaintiffs must showthat the money at issue is a bonafide debt. Treas. Reg. § 1.166-1(c). Butplaintiffs'

### pro rata share ofAtek's income is capital, not debt. "A gift or 

### contribution to capital shall not be considered a debt for purposes of section 166." 

### Id. (emphasis added); 

### accord Cenex, Inc. v. UnitedStates, 156 F.3d 1377, 1381 (Fed. Cir. 1998). The money at issue was Mr. Mohamad Taha's earned pass-through income from his

### pro rata shares in Atek. ThatMr. MohamadTaha's earnings were proportional to his ownership share suggests that this money was capital, not debt. 

### See Cenex, 156 F.3d at 1382 (citing 

### Bardo Product Co. v. 

### UnitedStates, 476 F.2d 1312, 1324 (Ct. CL 1973)). Further, traditional indicia ofdebt, 

### viz., calculated interest and a payment schedule, are notpresent inthe transaction atissue, again suggesting that this money was a capital contribution, not debt. 

### See id. (citation omitted). Additionally, assuming plaintiffs could showthat this equity was debt as contrasted to capital, plaintiffs would be unable to showthatthis money is business debt, as required for noncorporate taxpayers. 

### See I.R.C. § 166(d). Plaintiffs here cannot showthat Mr. Mohamad Taha's debt was proximatelyrelated to his trade or business, 

### see Treas. Reg. § l .166-5(b)(2), as they cannot showthatMr. Mohamad Tahawas engaged inthe trade or business ofAtek. Simplyput, Mr. Mohamad Tahaperformed no services for Atek. Thus, Mr. Mohamad Tahacannot be considered as engaging inthis activity with "continuity and regularity" or thathis "primary purpose for engaging inthe activity [was] for income orprofit." 

### Commissioner v. Groetzinger,

8480 U.S. 23, 35 (1987). 

### Mr. Mohamad Taha's role as only a shareholder makes his interest nonbusiness for purposes ofSection 166. 

### See Whipple v. Commissioner, 373 U.S. 193,202 (1963).

Becauseplaintiffs are unable to showthat the money at issue is debt and that it is specifically business debt, they cannot meet the requirements ofSection 166 and thus are not entitled to the extended seven-year limitations period provided by Subsection 6511(d). Therefore, plaintiffs' 2003 amended tax return, ifconsidered filed, would be untimely.
CONCLUSION

Forthe reasons stated, plaintiffs are unable to meet their burden to showthat this court hasjurisdiction over their 2003 tax refund claim. Consequently, plaintiffs' claim shall be DISMISSED for lack ofsubject-matterjurisdiction. The clerk is directed to enterjudgment according!y.
No costs.
It is so ORDERED.

Ch~ Senior Judge

9