Jin tbe Wniteb ~tates Qtourt of jf eberal Qtlaims 

No. 17-1174T 

(Filed: April 1, 2020) 

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ALI TAHA, on behalf of his deceased 

brother and his brother's wife, 

Plaintiffs, 

v. 

UNITED STATES, 

Defendant. 

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Claim for tax refund; tax paid on 

shareholder's portion of Subchapter 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-year period of 

limitation for business bad debt claims; 26 

U.S.C. § 651 l(d)(l) 

Ali M. Taha, prose, Bradenton, FL, on behalf of his deceased brother, Mohamad E. 

Taha, and his brother's wife, Sanaa M. Yassin, United Arab Emirates. 

Elizabeth A. Kanyer, Trial Attorney, Court of Federal Claims Section, Tax Division, 

United States Department of Justice, Washington, D.C., for defendant. With her on the briefs 

were Richard E. Zuckerman, Principal Deputy Assistant Attorney General, Tax Division, and 

David I. Pincus, Chief, Court of Federal Claims Section, Tax Division, United States Department 

of Justice, Washington, D.C. 

OPINION AND ORDER 

LETTOW, Senior Judge. 

Plaintiffs filed this action against the United States ("the government") seeking a refund 

of federal income taxes from the 2002, 2003, and 2004 tax years. Following dismissal by this 

court of plaintiffs' claims for lack of subject-matter jurisdiction and a subsequent decision by the 

United States Court of Appeals 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' tax refund 

claim for the 2003 tax year. See generally Taha v. United States, 137 Fed. CL 462 (2018) 

("Taha I"), aff'd in part, vacated in part, and remanded, 757 Fed. Appx. 947 (Fed. Cir. 2018) 

("Taha II"). The Federal Circuit directed this court on remand 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 if so, (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 now ready for disposition. 
FACTS1 

Plaintiffs, Mohamad Taha and his wife, Sanaa Yassin, 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!."), ECF No. 4. 2 

Plaintiffs' suit was first filed in the United States District Court for the Middle District of Florida 

in May 2017, but the District Court ordered that the case be transferred to this court because it 

lacked jurisdiction over plaintiffs' claims. See District Court Transfer Order, No. 8: 17-1094-T33AAS (M.D. Fla. June 13, 2017), ECF No. 1. The complaint was transferred on September 18, 

2017. See Comp!. On January 30, 2018, defendant filed a motion to 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 lacked jurisdiction to hear plaintiffs' claims, see Taha I, 137 

Fed. CL at 469. 

The Federal Circuit affirmed-in-part, vacated-in-part, and remanded the case back to this 

court on December 14, 2018. Taha II, 757 Fed. Appx. at 954. In a per curiam decision, the 

Federal Circuit affirmed that this court lacked subject-matter jurisdiction over the 2002 and 2004 

tax refund claims because plaintiffs "did not file their tax refund suit within the statutorilyprescribed two-year period from the date the [Internal Revenue Service ("IRS")] first mailed 

notices of disallowance 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 tax refund claim stems from Mr. Mohamad Taha's shareholding in Atek 

Construction, Inc. ("Atek"). Atek was a Subchapter S Corporation formed in 1996 by Mr. Ali 

Taha and his nephew, Mr. Eyad Khalil. See Tr. 120:11-18; 121:6-8 (Test. of Ali Taha).3 Atek 

1

The recitation of facts constitutes the court's principal findings of fact in accord with 

Rule 52(a) of the Rules of the Court of Federal Claims ("RCFC"). Other findings of fact and 

rulings on questions of mixed fact and law are set out in the analysis. 

2Mr. Mohamad Taha passed away in 2007. See Pls.' Post-Trial Brief ("Pls.' Br.") at 1, 

ECF No. 81. The government argues that Mr. Ali Taha cannot serve as the representative for 

Mr. Mohamad Taha because Mr. Ali Taha has not demonstrated that he has been appointed as 

the personal representative or executor of Mr. Mohamad Taha's estate. Def.'s Post-Trial Brief. 

("Def.'s Br.") at 39, ECF No. 85. The government is correct as to this point, see RCFC 17(a)(l), 

but because the court today finds that plaintiffs are not entitled to relief, this argument is moot. 

Further, the government does not "object to [Mr. Ali Taha's] representation of [Ms.] Yassin as to 

the full amount of the 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 may represent oneself or a 

member of one's immediate family." RCFC 83.l(a)(3). Accordingly, Mr. Ali Taha may serve 

as Ms. Yassin's representative. 

3

The transcript of the 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 

2 
was a construction company that bid on and completed work for various public projects, often 

working with subcontractors for these projects and obtaining bonds from surety companies for 

each project. See Tr. 125:21-25; 126:13-22 (Taha). When Atek 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 of his 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 not pay any money or perform any 

services for these shares. Tr. 124:16-21 (Taha). Mr. Ali Taha also gave five percent of his 

shares in Atek to 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 Taha with 

35%, Mr. Mohamad Taha with 10%, and Mr. Ali Taha's other brother with 5%. See Tr. 125:6-

18 (Taha). 

For tax years 2002 and 2003, Atek reported ordinary business 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 considered passthrough income, meaning its shareholders were required to report their pro rata share of Atek's 

income on their own individual income tax returns. See 26 U.S.C. § 1366. Therefore, Mr. 

Mohamad Taha reported 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 paid taxes on this income in the amount of $8,573 for 2002 and 

$5,604 for 2003. DX 1 at 2; 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 on this income, they never received 

distributions from Atek equal to the full amount they had to report as income; instead, Atek 

retained most of this money to sustain the company's operations. See Tr. 129:14-20 (Taha). By 

the end of 2003, plaintiffs had received only $20,000 in distributions from Atek. See Tr. 142:20-

22 (Taha). For each of these two years, plaintiffs received a "promissory note" from Atek, 

drafted and signed by Mr. Ali Taha, that included Atek's promise to pay plaintiffs and listed the 

amount owed to plaintiffs from their profit distributions retained by Atek as well as an interest 

rate of 10% to be applied at some unspecified future date of payment. See generally PX Cl 

(2002 Promissory Note); PX C2 (2003 Promissory Note ).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 only recover up to 

$5,604, the amount plaintiffs paid in income taxes for that year. 

5The promissory note for 2002 listed the amount owed to plaintiff Mohamad Taha as 

being the full amount plaintiffs claimed for their income in their 2002 individual income tax 

return, $84,935. This is not the correct amount, however, because plaintiffs received $20,000 in 

distributions from Atek. Thus, the amount owed to plaintiffs for 2002 should be reduced by 

3 
In the fall of 2004, Atek experienced financial difficulties due to lack of payments 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 

sought payment from the bonding companies securing Atek's various projects. See Tr. 16:19-21 

(Taha). The bonding companies immediately took over the operations of Atek and filed lawsuits 

against Atek and its primary shareholders. Tr. 16:22-25 (Taha). In at least one lawsuit, the court 

entered judgment in favor of the bonding company against Atek. See generally DX 26. Because 

Mr. Mohamad Taha had not received any payments regarding the undistributed income, he later 

sought to recover his undistributed amounts via a bankruptcy action that had been brought by 

Mr. Khalil, another shareholder, in 2006. See PX H2 at 92. Mr. Mohamad Taha was 

unsuccessful in his claim for payment because 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 Taha helped Mr. Mohamad Taha and Ms. Yassin prepare both of their 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). On plaintiffs' amended tax return for 2003, plaintiffs claimed they 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 similar refund 

claim in their 2002 amended tax return. See PX GI at 78-79. On November 9, 2007, Ms. Yassin 

signed both the Form 1040X for tax year 2002 and Form 1040X for tax year 2003. PX GI at 78; 

PX G2 at 80. Mr. Ali Taha testified that "both [the] 2002 and 2003 [amended returns] were filed 

simultaneously ... and taken to the post office either by myself or my - whoever at the time, 

most likely myself, because plaintiffs didn't have 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 on November 29, 2007, see DX 1 at 2, but the IRS's records do not reflect ever having 

received plaintiffs' Form 1040X for tax year 2003, see DX 2 at 2. 

Mr. Taha recalls that based on his experience, the amended returns for each year were 

likely mailed in separate envelopes, but he could not testify 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 of letters exchanged between plaintiffs 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 Taha testified that he was aware of this error, but simply never 

revised the promissory note. See Tr. 143: 14-21 (Taha). 

6Whiie the Federal Circuit in its opinion identified the issue of whether 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 FOR DECISION 

A. Jurisdiction in Tax Refund Suits 

Pursuant to the Tucker Act, this court has jurisdiction over claims seeking recovery of an 

internal revenue tax alleged to have been erroneously or illegally assessed or collected. See, e.g., 

Hinckv. United States, 64 Fed. Cl. 71, 75 (2005), ajf'd, 446 F.3d 1307 (Fed. Cir. 2006), aff'd, 

550 U.S. 501 (2007). This court's jurisdiction 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 plaintiff must satisfy additional prerequisites to establish this court's jurisdiction in these 

types of cases. Primarily, before a plaintiff can bring a tax refund suit, a claim must first be filed 

with the IRS in accord with relevant statutory and regulatory provisions set out in the Code. See 

26 U.S.C. § 7422(a) ("No suit or proceeding 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 oflaw in that regard, and the regulations of the Secretary established in pursuance 

thereof.").7 

Most relevant here are provisions of the Code regarding the timing of refund 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 of an overpayment of any tax ... shall be filed by the taxpayer within 3 years from the 

time the return was filed or 2 years from the time the tax was paid, whichever of such periods 

expires the later." When the refund claim involves bad debts or wotthless securities, the 

limitation period for making a claim is longer. For these types of claims, i.e., claims relating to 

debt that became worthless under I.R.C. § 166 or § 832( c) or losses from worthlessness of a 

security under I.R.C. § 165(g), the period for filing a refund claim "shall be 7 years from the date 

prescribed by law for filing the return for the year with respect 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 United States v. Brockamp, 519 U.S. 347,352 (1997); Cooper 

v. Commissioner, 718 F.3d 216,225 (3d Cir. 2013)). 

B. Business Bad Debt and Section 6511 

For an individual taxpayer to receive the benefit of the extended refund filing period 

under Subsection 6511 ( d) for bad debt, the taxpayer must prove 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 itself and 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] bona fide 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 of money," 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 "a debt other than ... a debt created or 

acquired ... in connection with a trade or business of the taxpayer; or ... a debt the loss from 

the worthlessness of which is incurred in the taxpayer's trade or business." I.R.C. §§ 

166(d)(2)(A)-(B). Lastly, as implicated by the text of the 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 2003 Amended 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 of mailing, see, e.g., Tr. 79:8 to 80:2, as well as a copy of the 

original 2003 Form I 040X they allege they filed, see PX G2. In response, the government 

presented IRS records of plaintiffs' filings, see DX 2, which do not reflect the IRS ever having 

received plaintiffs' 2003 Form 1040X, and the government asserts that these records are 

"presumed to be true, accurate, and correct," Def. 's Br. at 15 (quoting !shier v. United States, 

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's jurisdiction in light ofI.R.C. § 7422. 

The physical-delivery rule is a well-established tenet of tax law-a document 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. United States, 784 F.2d 728, 730 (6th Cir. 1986) (quoting United States v. 

Lombardo, 241 U.S. 73, 76 (1916)). To account for vagaries of the postal service and to mitigate 

the harshness of the physical-delivery rule, some courts, decades ago, began to apply the 

"common-law mailbox rule," see Baldwin v. United States, 921 F.3d 836, 839-40 (9th Cir. 

2019), cert. denied, 589 U.S.~' 140 S. Ct. 690 (2020), that is, "the judicially-created 

presumption that material mailed is material received," Miller, 784 F .2d at 730. "Under the 

common-law mailbox rule, proof of proper mailing-including by testimonial or circumstantial 

evidence-gives rise 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 by U.S. mail. See id. Under Paragraph 

7502(a)(l), a claim is considered filed on its date of postmark, even ifit is received by the IRS 

after the applicable deadline. This exception, however, expressly contemplates the document's 

eventual receipt by the 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 physical6 
delivery rule for those documents mailed via registered or certified mail. See I.R.C. § 7502(c). 8 

Subsection ( c) specifically provides that for documents sent by registered mail, "such registration 

shall be prima facie evidence that the ... document was delivered to the agency." I.R.C. § 

7502( c )(1 )(A). 

Following the passage of Section 7502, "coutis of appeals reached conflicting decisions 

as to what effect, if any, the statute had on application of the 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 long held that the common-law mailbox rule no longer 

applies and that Section 7502 provides the exclusive exceptions to the physical-delivery rule. 

See, e.g., Davis v. United States, 43 Fed. Cl. 92, 94 n.4 (1999), ajf'd, 2000 WL 194111 (Fed. Cir. 

Feb. 16, 2000) (citing Ygnatowiz v. United States, 1997 WL 625502, at *4 n.8 (Fed. Cl. Aug. 5, 

1997), Mcilvaine v. United States, 23 Cl. Ct. 439,442 (1991), and Favell v. United States, 22 CL 

Ct. 571,576 (1991), among others). Seeking to clarify the confusion caused by the circuit split, 

the Treasury Department amended its regulation interpreting Section 7502 to make explicit that 

taxpayers can no longer tum to the common-law mailbox 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 of a postmark or 

of mailing will be prima facie evidence of delivery or raise a presumption that the document was 

delivered." Treas. Reg. §§ 301.7502-1 ( e )(2)(i), (g)( 4). 

In the Federal Circuit's decision on appeal in this case, the court cited to Jones v. United 

States, 226 F.2d 24, 27 (9th Cir. 1955), for the proposition that plaintiffs here "may be able to 

show that the claim was timely mailed." Taha II, 757 Fed. Appx. at 952 n.3. While Jones has 

not been explicitly overruled, and remains only persuasive authority to this court, the Ninth 

Circuit recently reconsidered the holding of Jones in Baldwin, evaluating the effect of the Treas. 

Reg.§ 301.7502-l(e)(2)(i). In Baldwin, the Ninth Circuit effectively overturned the holding in 

Jones, applying Chevron, US.A., Inc. v. Natural Res. Def Council, Inc., 467 U.S. 837 (1984), 

and National Cable & Telecomms. Assoc. v. Brand X Internet Servs., 545 U.S. 967 (2005), and 

concluding that Treas. Reg.§ 301.7502-l(e)(2) is valid and a "reasonable interpretation of the 

governing statute[, I.R.C. § 7502]." 921 F.3d at 843. 

Given these precedents, the court is left with little room for digression. For plaintiffs' 

2003 amended tax return Form 1040X to be considered filed, plaintiffs must be able to show that 

the form was actually delivered to the IRS or that they otherwise met the requirements ofI.R.C. 

§ 7502. The IRS's records for Mr. Mohamad Taha and Ms. Sanaa Yassin for 2003, presumed to 

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 of the stated exceptions of Section 7 502. Plaintiffs instead urge the court to 

look to their testimonial evidence of mailing, see Pis.' Br. at 31, but the court is foreclosed from 

applying the common-law mailbox rule, considering the language of Treas. 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 not potentially applicable to this case and therefore are not addressed. 

7 
1( e )(2). Absent the requisite evidence showing that they fall within the exceptions of Section 

7502, plaintiffs cannot show that they filed a claim for refund with the IRS as required for 

jurisdiction in this court pursuant to I.R.C. § 7422. Therefore, the court does not have subjectmatter jurisdiction over plaintiffs' 2003 tax refund claim. 

B. Inapplicability of a Business Bad Debt Claim 

Even if plaintiffs could show that they filed their 2003 amended tax return, plaintiffs still 

would have the burden of showing that this filing was timely. It is likely that plaintiffs' 2003 

amended tax return would have been received by the IRS around the same time their 2002 

amended tax return was received, if they were indeed mailed at the same time. Plaintiffs' 2002 

amended tax return was received, according to the official IRS record, on November 29, 2007. 

See DX 1 at 2. Thus, assuming that plaintiffs' 2003 claim would have been received around this 

same time, it would have been untimely because it would have been received 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 submit that their claim 

for refund is timely because it falls within the seven-year period of limitation for business bad 

debts under I.R.C. § 6511 ( d)(l ). Pis.' Br. at 11. The government counters that plaintiffs are not 

entitled to the extended period of limitation for bad debts because plaintiffs "cannot demonstrate 

that the taxed but undistributed S corporation shareholder income is debt, that the purported debt 

is business debt, or that purported debt became worthless in tax year 2004," Def.'s Br. at 25 

(emphasis omitted), as required under I.R.C. §§ 166,651 l(d). 

Plaintiffs have not met their burden of proving they are entitled to the seven-year 

limitation period. Section 166 defines bad debt for the purposes of the extended limitation 

period of Section 6511. Under Section 166, plaintiffs must show that the money at issue is a 

bona fide debt. Treas. Reg. § 1.166-1 ( c ). But plaintiffs' pro rata share of Atek'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. United States, 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. That Mr. Mohamad Taha'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. United States, 476 F.2d 1312, 1324 (Ct. CL 1973)). Further, 

traditional indicia of debt, viz., calculated interest and a payment schedule, are not present in the 

transaction at issue, again suggesting that this money was a capital contribution, not debt. See id. 

( citation omitted). 

Additionally, assuming plaintiffs could show that this equity was debt as contrasted to 

capital, plaintiffs would be unable to show that this money is business debt, as required for noncorporate taxpayers. See I.R.C. § 166(d). Plaintiffs here cannot show that Mr. Mohamad Taha's 

debt was proximately related to his trade or business, see Treas. Reg. § l .166-5(b )(2), as they 

cannot show that Mr. Mohamad Taha was engaged in the trade or business of Atek. Simply put, 

Mr. Mohamad Taha performed no services for Atek. Thus, Mr. Mohamad Taha cannot be 

considered as engaging in this activity with "continuity and regularity" or that his "primary 

purpose for engaging in the activity [was] for income or profit." Commissioner v. Groetzinger, 

8 
480 U.S. 23, 35 (1987). Mr. Mohamad Taha's role as only a shareholder makes his interest nonbusiness for purposes of Section 166. See Whipple v. Commissioner, 373 U.S. 193,202 (1963). 

Because plaintiffs are unable to show that the money at issue is debt and that it is 

specifically business debt, they cannot meet the requirements of Section 166 and thus are not 

entitled to the extended seven-year limitations period provided by Subsection 6511 ( d). 

Therefore, plaintiffs' 2003 amended tax return, if considered filed, would be untimely. 

CONCLUSION 

For the reasons stated, plaintiffs are unable to meet their burden to show that this court 

has jurisdiction over their 2003 tax refund claim. Consequently, plaintiffs' claim shall be 

DISMISSED for lack of subject-matter jurisdiction. The clerk is directed to enter judgment 

according! y. 

No costs. 

It is so ORDERED. 

Ch~ 

Senior Judge 

9