## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N o. 07

- 3593 A LA N B IL THOUSE an d P AT R I CI A B ILTHO USE , P laint if fs -App el lants , v.
U NI T ED S TATE SOF A MERI CA, D efend a nt-A pp ellee

.

A pp eal from the United S t ates Di strictC our t fo r the N o rthernDi stricto f Illino is, Eas tern Div isi on. No . 05 C4442

—V irgin ia M . Ken dall, Judge .
A RG UE D M AY 15, 2008

— D ECIDED J AN UA RY 15, 2009

Befo re R IPPLE, K ANN E , an d W I L L I A MS, C ircu it Judges. W IL LI A MS, Cir cu i tJudg e . Alan and Patri ci a Bi l thouse se ek to r eco vera tax r efund o n the basi s that thei r shar es ofst ocki n a c onst ructi on co m pany beca m e “ w orth less ” i n 1 9 9 7a nd wer e th e r e f o r e “d i s po s e [ d] o f ” u nd e r 2 6 U. S
. C. § 4 69 (g). T h e g ov er n m e n t d e n ied th e re fu n d on th e b as is that the c om p any b ecam e worthl ess i n 199 5 r atherthan 1997. The Bi l th o us es do no t di spu te tha t th e co m pan y2 N o. 07

- 3593 ha d no l i qui dat i ngv al ue i n o r a fte r 1 99 5 butc o nt en d thatthe c o m pan y e xpe ct ed a l ar g e fi na nc i alr ec overy fro m a law su it th at w o u ld h av e a llow ed it to st ay in busi ness. Because the r eco rd does n ot dem onst ra te that th e l aws ui t r epr es en te d a r ea so nabl e po ss ibi l ity thatthe com p an y w ou ld rem ain in b us iness after 1995 , w e affirm th e di st r i ctc o ur t’ s dec i si o n g r an tingthe g o ve r nm en t sum m ar y j ud gm ent.

I . B AC KGR OUND I n Mar ch 1 993 , the Bi l th o us es b o ug hts to cki n a c o nstructi on co m p an y c alle d S& E C on tr ac to rs , In c . (“S& E ”) fo r $500 , 000. S & E w as a hea vy const ructi on co ntra cto r that pe r f o r med p ub l i c wor k s p r oj e c t s f o r the S t a t e o fF l o r i da an d i t s cit ies an d to w n s. Inord er to bid on th es e p u b lic co nstruc ti o n pr oj ec ts , S &E was r equi r ed to o bt ain c o ns t r u c t i o n b o n d s . S &E o b t a i n e d b o n d i n g th r o u g h t wo sure ti es: Fi re m an’ s F und Insurance Com pany and Safeco I nsurance Com pany. Fr om A pri l 19 94 thro ugh Ju ne 19 95, S & E suffer ed m i l l i ons ofdol l ar s in l oss es as a r esul t o fco st ove rr uns on a larg e con st ru c tio n p roj ec t for th e C ity of J a c k s on ville c a l l e d th e N o r th L a n d fi l l P r oj e c t
. In 1 9 9 5 , S &E b e c a me fi nanc ially i nsol vent and defaul ted o n i ts bonds, wh i ch m eant i t had to se ek the a ssi sta n ce o fi ts bondi ng co m pani es to com ple te i ts bonded con tr ac ts. S & E’s open proj ects were com ple ted un d er the ter m s o fi ts agr eem en ts wi th th e bo ndi ng co m pan i es , whi ch co l l ec te d the re venue fro m the proj ects
. A s a r esult, S & E had li ttl e t o n o c a s h fl o w.N o. 07

- 3593 3 A lso in 1995 , S& E d ecid ed not to bid on any m o re bonded w or k, and both ofi ts bondi ng co m panie s s topped i ssui ng bo nd s t o S&E fornew p ubl i c co nstr ucti on proj ects
. Dea n Ake r s, who w as en g ag ed byS &E a s a co ns ul ta nt i n the s pr i ngo f1 99 5, a nd who b ecam e it s pr es i den t l ate r that yea r, te sti fi ed that thi s was a tem pora rym eas ure; S&E i ntended to st op se eking new gove rnm ent pr oj ects only un til i t cou ld obta in new bond ing. H ow ever, there i s no e vi den ce tha t S &E t r i ed to o bt ain ne w bo ndi ng after19 95. I n the f al l o f1 99 5, S&E fi l ed a l aw sui t a gainst the Ci ty o fJ ac k so nv i l l e to r ec o ve r i ts fi na nc i all o ss es from the N or th Landfi l l Proj ect. The sui t was se ttl ed in 1997 with ne i th erS &E no r e i th erb o ndi ngc o m p an y re ce i vinga ny m oney . S&E had elec ted to be taxed as a subchapterS co rpor ati on, wh i ch m eans i ts i ncom e fl ows thro ugh and is taxed a s i nc o me t o the c o r po r a t i o n’ s s ha r e ho l de r s i nd i v i du a l l y. See 26 U
. S. C. § 4 69; s e ege ne r al l y S t
. Ch a rles In v. Co. v. C om m ’r, 23 2 F
. 3d 773, 775 ( 10th C i r. 20 00)
. In 200 1, A l an B il t h o us e and his w ife Pat rici a B il th ou se fi led for a r efund o fpa i d i nc o m e ta xe s w i ththe Int erna l Re ve nue S e r v i c e b a s e d o n th e i r c l a i m th a t th e i r s h a r e s i n S &E b e c a me wo r thl e s s i n 1 9 9 7a nd the r e f o r e we r e “ di s po s e [ d] o f ” attha t t i m e. The I RS deni ed the Bi l th o us es ’ r efund a nd the Bi l thouse s s ued to re cove r the re fund i n federa l co urt. The di st r i ctc o ur t g r an te d s um m ar y j udg m en t to the gov er nm ent, hol ding that the Bil thouse s had fai l ed to m eet th ei r b ur deno fde m o ns tr ati ngtha t S &E b ec ame “ wor th

l ess ” in 19 97 r ather than i n 199 5. The Bi l thouse s a pp eal th atde ci si o n.4 N o. 07

- 3593 II. A N A L Y S IS T h i s c a s e c o m e s t o u s o n a p p e a l fr o m a g r a n t o fs u mm ar y jud gm en t, w h ich w e re vie w d e n ov o, d ra w in g a ll in fer en c es in fa vo r of th e n on m ov in g p ar tie s. Bre ne i s e n v . M otorola, Inc. , 512 F.3d 972 , 977 (7th C ir. 2008). Sum m ary j udg m en t i s appr o pr i at e where the r e ar e no g en ui ne i ssues of m at er i alf act and the m oving par ty i s e nti tl ed to j u d gm en t a s a m at te r o fl a w . Fed . R. C iv. P . 56(c ); C elo tex C orp. v. Ca tret t, 477 U
. S. 317, 322-23 (1986 ). The Bil thouse s ar e “passi ve i nvest or s” i n S& E , w hi ch m eans they i nvest ed i n a b usi ness i n w hi ch theydi d not m ateriall y p articipate
. 26 U
. S. C
. § 469(c). S& E Con tracto rs i s anS c o r po r at i o n s o pur su an t to s ec ti o n 4 69 , the B ilth ou se s c ou l d d ed u c t los se s s te m m in g fro m th eir i nvest m ent in S&E bu t onl y t o the e xtent o fthei r passi ve i n c o m e . 2 6 U .S.C . § 46 9(d ); s e eal s o 5 M er tens Law o f Feder alIncom e Taxat i on § 2 4C : 3 ( 2008 ) ( “[ A ] ta xpayer cannot d educt l oss es fro m busi ness acti vi ti es i n w hi ch he o r s he do es no t m at er i al l ypa r ti ci pat e . . . unl es s he or she rep orts p assive incom e o n th e tax return agains t w hich to offset the losses.”). H ow ever, surp lu s losses fr om pa ssive activity are su sp en d ed an d c ar rie d ov er from ye ar to ye ar . Pr ev iou sly suspended l oss es m ay be a vai l abl e t o off seto ther i nc o m e wi th o utr eg ar d t o the pa ss i ve l o ss rules i fthe ta x p a y er ’s “ en tir e in te re st in a n y p as siv e a c tiv ity ” is “dis pose[ d] o f ” in a taxabl e tr ansact i on. 26 U
. S. C. § 4 69( g) ; see also St. C ha rles Inv. C o ., 23 2 F
. 3d at 776
. Her e, the Bil thouse s s eekto take a dvantage o fse cti on 4 69( g) to ded uct pre vi ousl y s uspend ed passi ve acti vi ty l oss esN o. 07

- 3593 5

ar i si ng fro m thei r i nvest m ent in S&E
. The part i es agr ee tha tthe Bi l tho us e s ’ en t i r e i nt e r e s ti n S &E wa s “ di s po s e [ d] of” f orpurp os es o fse cti on 4 69( g) wh eneve r thei r sto ck i n the cor pora ti on be cam e “ w or thl ess . ” See 2 6 U. S
. C. § 1 6 5 ( g ) ( “ I f a ny s e c ur i t y whi c h i s a c a pi t a l a s s e tbec om es wor th l es s dur i ngthe t ax ab l e y ea r, the l o ss r es ul ting ther efro m shal l, fo r pu rpos es ofthi s s ubti tl e, be tr eat ed as a lo ss f r o m t he s a l e o r e xc ha ng e , o n the l a s tda y o f the tax ab le y ear, o fa capi talas set
. ”)
. But the parti es di sa g r ee a s to whenthe s to ckb ec ame wo r th l es s. The Bil thouse s co ntend thei r sto ck becam e worthl ess i n 199 7 ( whi ch, due to a nu m be r o fc i r cumst an ce s no t r el ev an t to th is c as e, w ou ld res u lt in a lar ge t a x d ed u c tio n ) w h ile the g overnm ent c onte nd s the st ockbec am e worthl ess tw o yea rs pri or, i n 199 5. So th e c ru c ial q u es tio n in t h is c a s e is w h en ex ac tly S &E ( an d the r efo r e i ts s to ck ) b ec ame wo r th l es s. The w or thl ess ness ofa sto ck as ofa parti cul arye ari s a f actual i nquir y, var yi ng acco rdi ng to the c i rcum sta nces of each c ase . Bo ehm v. Co m m ’r, 326 U .S. 28 7, 2 9 3 (1 94 5); see U nited Sta tes v. D a ven po rt, 41 2 F
. S up p. 2 d 1 2 0 1 , 1 2 0 7( W
. D. Okl a. 2 00 5)
. Al th o ug h s ec ti o n 1 65( g ) do es no t defi ne “worthl es s, ” m o stc o ur ts c o ns i derb o ththe l i qui dat i ng va l ue a nd the po te nt i alv al ue o f th e co m pan y t o de te r m i ne th e yea r of w or th les sn es s. SeeM orton v. Co m m ’r, 3 8 B
. T
. A. 12 70 , 1 2 7 8 ( B .T .A . 193 8), aff’d 11 2 F
. 2d 320 ( 7th Ci r. 19 40) ( wor th l es sn es s o fs to ckde pen ds o n c urren t l i qui dat i ng va lu e a n d p ot en tia l va lu e); see also D elkv. C o m m ’r. , 113 F.3 d 98 4, 98 6 (9 th C ir. 19 97 ); Figgie In t’l, Inc. v . Co m m ’r. , 807 F.2d 59, 62 (6th C ir. 1986).6 N o. 07

- 3593 E ve n w h er e a co m p an y h as n o l i q u id at in g v alu e, ev idence of potenti al val ue can be used to dem onst ra te th at a c om p an y is n otye t w or th les s d u rin g a p ar tic u lar ye ar . I f a com p an y’s assets are less tha n its l ia bil iti es bu t “th ere is a rea so n ab le h op e a n d ex p ec ta tio n th at th e a s s e t s w ill excee d t he l i abi l i ti es ofthe cor pora ti on in the future, i ts sto ck, wh i l e hav i ng no l i quidati n g va lue, has potenti al v a l ue ” a nd c a nn o tb e s a i d t o b e “ wo r thl e s s . ” M o rt on , 38 B .T .A . at 1 27 8; D el k, 11 3 F
. 3d at 986. H owever, a taxpayer re l yi ng o n the potenti alvalue o f a com pany to pu t off the yea r of w or thl ess n es s m ust pr o vi de o bj ec ti ve ev i den ce o fthi s va l ue ; mer ely a ss er ting hi s s el f

- ser vi ng hopes w i l l notd o. S e eB o e h m, 32 6 U.S
. at 29 3; D a ven po rt, 4 12 F
. S upp. 2 d a t 120 7. In Boeh m , the Sup rem e C ou rt held that “a d eter m in a tion of w he th er a l oss was i n f act sust ain ed in a part i cul arye arcannot f a i r l y b e ma d e b y c o n fi n i n gth e t r i e r o ff a c t s t o a n e x a mi nati on o fthe taxp aye r’ s be l i ef s a nd act i ons. ” 3 26 U
. S. at 29 2; se e also Kee ney v. Co m m ’r, 1 16 F
. 2d 40 1, 4 03 ( 2d Ci r. 1940 ) ( a t axpayercannot“pos tpone hi s cl ai m o fl oss unti l o nl y a n ‘ i ncor ri gibl e o pti m i st’ would fai l to kno w th at th e stock h ad becom e w orthless at an earli er da te.”). W e a re m i nd ful that the Bi l thouse s be arthe burden of es ta b lish in g t h at S& E w as n o t w o r t h les s u n til 19 97
. See B o e h m, 32 6 U.S
. at29 3 ( taxpayer bor e the burden ofes tabl i shi ng the f act th at t h ere was a ded uctibl e l oss i n 193 7 r athe r tha n in the pr i o r year )
. Thi s m ea ns tha t th e B i l th o u s e s mu s td e mo n s t r a t e th a tS &E r e t a i n e d s o me val ue, ei therpre sent orpote nti al, unti l 19 97.N o. 07

- 3593 7 The Bi l th o us es do no t pr es en t an y e vi den ce tha t m i g ht dem onst ra te that S&E had l i quidati ng va l ue after 1 995. Inco n tr as t, th e g o v e rn m en t p re se n ts ev id en c e t h at in 1995 , S & E becam e fi nanci al l y i n so lvent, def aul ted o n i ts bonds, and tur ned to the b ondingco m panie s t o fi nance th e co m pl et i o n o fi ts b o nde d wor k, a t whi chpo i ntthe bond i ng co m panie s s topped i ssui ng bo nd s t o S&E f or ne w proj ects. B ec au se o fS &E ’ s def au l t, the b o ndi ng com p an ies took con trol over th e reven ue from S& E ’s open proj ects
. S & E re p or ted a l oss o f$1 8, 377, 151 on i ts tax return s for th at year. I ns t e a d, the Bi l tho us e s ma i nt a i n tha tS &E r e t a i ned pote n ti alvalue thr ough 1 995 and up unti l 19 97 because du ring tha t t i m e, the com pany expecte d an award of$1 5 to 27 m i l l i on fro m the J acks onvi l l e l aw sui t. H ad such a n a wa r d b e e n g i v e n, th e B i l th o us es co n t e n d th a tS &E w oul d have be en abl e t o re sum e i ts oper ati ons after 1995
. Of cour se, the l aw sui t ul ti m ate l y was r eso l ved unfav or ablyf orS & E i n 199 7, and i t r ecei ved no m oney fr o m the l i ti g at i o n. Buta cc o r di ngto th e B i l th o us es , the d ea th kn ell d id n ots ou n d for S& E u n til t hatpar t i cu l ar e ve nto cc ur r ed, a nd the r efo r e S &E di d no t becom e wor th

l ess u n til19 97. They a l so ar gue that S & E m ai ntai ned i ts w or th bypursui ng pri vate co nstr u c tio n proj ects th r o ug h 1 99 6 a nd 19 97
. W e a ddr es s e ac h a r g um en t i n tur n.

A . T h e Jack son vill e law su itdo es n o t d em on strat e t hat S& E r et ai ned pot enti al va l ue af t er19 95. T h e l i n c h p i n o f th e B i l th o u s e s ’ a r g u me n t i s th att wo S& E p re sid en ts , S& E ’s b on d in g com p an ies , an d its ba n k a ll8 N o. 07

- 3593 expected a re cove ryfro m the l aw sui t, and theyexpecte d th e re cove ryto be suffi ci ent t o re pay the bo nd i ng co m pani es and al l ow S& E to aga i n obt ai n bon d ing f ornew g o ve r nm en t pr oj ec ts
. In o th erwor d s, the y b el i ev ed th e law su it w ou ld save S& E
. H ow ever, as th e Sup rem e C ou rt has a l re ady not ed, a deter m i nati on o fwh en a parti cul ar l os s w as susta i ned cannot be m ade bas ed on s ubj ecti ve b e l i e f s a lon e. S e eB o e h m, 3 2 6 U. S
. a t2 9 2
. As di s c us s ed fu rt h er be low , th e B ilth ou se s p re se n t n o ob j ec tiv e e vidence to dem onst ra te the r eas onabl eness o fthe bel i efthat th e l aws ui t r epresent ed po te nt i alv al ue f o r S &E , a nd w ith ou t t h at, th ey ca n n otm ee t t h eir bu rd en . See, e.g., M or t on , 38 B. T. A . a t 1 278 ( taxpayerm ust dem onst ra te a “ re ason a bleh op e a n d ex p ec ta tio n th at th e a ss et s w ill exceed the l i abi l i ti es ofthe corp or at i on in the future” ) (em p ha sis add ed ). I n the i r a ffi dav i ts , Do uglas Eb be r s ( f o r m erpr es i den t ofS & E) a nd Dean A ker s ( consul tant and presi dent of S& E from 19 95 th ro u gh 19 97 ) s t a t e th at h ad th e la w su it b e e n s u c c e s s fu l, S &E w o u l d h a v e b e e n a b l e t o r e s u me bi ddi ngo n c o nt r ac ts
. Ake r s fur th ers ta te s th atS &E a nd i ts bondi ng co m panie s o perat ed on t h e p re m i se that a f avo ra b le re soluti on o fthe l i ti gat i on would pro vi de a cash infusi on “ suffi ci ent t o re pay th e sure ti es and keep S&E a viabl e co m pany. ” The Bi l thouse s a l so subm i tte d ev id en c e t h at a n ou ts id e c on su lta n t v alu ed th e la w su it to b e wor tho ve r $ 20 mil l i o n. Butne i th er Ebbe r s no r Ake r s pr o vi des a b as i s f o r why a n y o n e th o u g h tth e l a w s u i tw o u l d b e s u c c e s s fu l

. We know nothi ng ab out the m er i ts ofthe l aw sui t o r w hetherN o. 07

- 3593 9

W e note that th e dam ages es ti m ate se em s a bithigh given 1 thatthe or i gi nalc ont ra c tam ountonthe proj ec t was $1 2 m i l l i on. S &E’ s da mag e s e s t i mat e was r e a s o nab l e . Ind e e d, we do note ve n kno w ho w the e st i m at ed damag es wer e ca l cul ate d. Evi dence thatS & E’s tw o presi dents be l i eve d

1 t h e l a w s u i t w o u l d p r e v a i l a n d th a t i t w o u l d s a v e S &E does not by i tse l fdem onst ra te that thei r bel ief w as re asonab l e. Fo r al l we know, they coul d have be en u n u su ally op tim ist ic. Se e, e . g. , Boe hm , 32 6 U.S
. at29 4- 95 ( uph o l di ngt a x c o ur t ’ s de t e r mi na t i o n tha ts t o c k ho l de r s’ sui t had no val ue wh er e there was no e vid en c e regard ing “th e m erits ofthe su it, the p robab il ity ofrecovery orany ass urance ofco l lec ti on o fan a m ount s uffi ci ent t o pay the cr edito rs ’ cl ai m o fm or e than $63 0, 000 and to provi de a su ffi ci ent s urpl us f orst ockhol ders so as to give any real value to th eir stock

. ”). The ac ti o ns o f th e bo ndi ng co m pan i es an d S &E ’ s bank ar e no m ore pr o ba ti ve o fthe po te nt i alv al ue o fS &E
. The Bil thouse s point out that al though the bo nd i ng co m panie s an d th e b an k “ c ou ld h av e” st op p ed d ea lin g w i t h S & E in 19 95 , the y c ho se t o wor kwi thS &E unt i l 1 99 7. The B il th ou ses con ten d that this w as becau se th ey w ere waiti ng t o s ee whatha ppen ed wi thS &E ’ s l aws ui t, a nd th a ta j u r yc o u l d i n fe r f r o m t h i s s h o w o fs u p p o r tth a tS &E had a vi abl e ca se and a reas onabl e expectati on o fr eco ver y. Butthe r e ar e se ve r alpo ss ibl e ex plana ti o ns f o r the behavi oro f t he bankand the bondi ng co m panie s that have nothi ng to do with the val ue of the c om pany orev en the v al ue o fthe l aw sui t. A nd ev en i ftheywere m oti vate d10 N o. 07

- 3593 by the pr ospecto fr eco ver y from the l aw sui t, we do not k n ow th e b as is for th eir p u ta tiv e b elie f th at th e la w su it w ou ld be resolved f avorab ly or th at th e exp ecte d recovery w oul d b e suffi ci ent to al l ow S & E t o re sum e i ts p rior oper ati ons. C ont rary to the B il th ou s e s’ assertion, a com p an y’s hope tha t it w i l l pre vai l i n a l aw sui t i s no t the sa m e for p u rp os es of th is a n aly sis as a c om p an y’s rea so n ab le expe c t a t i o n tha ti t s futur e o pe r a t i o ns wi l l s uc c e e d. Cf
. M ia m i B each Ba y Shore C o. v. C om m ’r, 1 3 6 F
. 2 d 4 0 8 ( 5th Cir
. 19 43) ( sto ck i n com pany w as not “ w orthl ess ” in 193 6 because ther e w as a re aso nabl e pros pect of r eor gani zati on unti l 19 37 w hen t h e sto ckhol ders re sol ved to l i quidate the com pany i nstea d); B enjam in v. Co m m ’r, 70 F. 2d 719 ( 2d Cir

. 19 34 ) (s toc k in so apstone co m pany not “wo r th l es s” in 1 92 6 be ca us e i t co nt i nue d t o t ak e o pti o ns an d e xpl o r e an d dr i l l f o r ne w so ur ce s o fs o aps to ne in to 19 27 ). Th at is be c au se n o re as on ab le in v e s t or w ou ld buy st ocki n an o ther w i se w or thl ess co m pany bas ed on s u c h a n i n h e r e n t l y s p e c u l a t i v e e n de a v o r . A tmin i mu m, an inv es to r w ou ld n ee d to kn ow m or e a b ou t t h e la w su it b efo re inv es tin g in su c h a c om p an y. F o r e x am p le, if the pr esi dent ofS & E had bought l ott er y t i cket s fro m 1995 unti l 19 97 w i th the bel i efthata w i nning ti cket wo u l d s a v e S &E , th a two u l d n o td e mo n s t r a t e th a tS &E h ad p ot en tia l va lu e d u rin g th os e t w o ye ar s b ec au se it i s purely s pecula ti ve that he would w i n the l ott er y. B y 1 99 5, S& E kn ew th er e w ou ld be n o for es ee ab le futur e o per at i o ns unl es s i t co uld payo ffi ts b o ndi ng co m pan i es . Al th o ug h S &E may ha ve ho ped th e J ac kso nvi l l e l aw sui t would e nabl e itto r eco ver, ther e i s no r ea-N o. 07

- 3593 11

so nabl e g r o und ( as f ara s we c ant el l ) f o r tha t ho pe. To al l ow a j ury to m ake a deter m i nati on o fworth b ase d on th e su bj ec ti ve bel i ef s o fS &E i ns i der s an d e nt i ti es c o nnecte d to i t would s ubj ect this ta x prov i si on t o endle ss m an i pul at i o n. Cf

. Boe hm , 326 U
. S. at 293 (“Th e t a x p a y er’s att i tude and conduct ar e no t t o be i gnor ed, but to codi fy them as the deci si ve f acto r i n eve rycase i s t o su r r o und the c l ea r l an g ua g e o f [ 28 U. S
. C. § 2 3( e) ] a nd the Treasu ry inte rpre tat i ons w i th an atm ospher e o funrea l i ty an d t o i m po se g r av e obsta cl es t o e ffi ci en t ta x a dm i nistration.”)
.
B . Th e pri v a t e const ruc t i o n p r o j e c t s do no tde mo nst r at e t hat S& E r et ai ned pot enti al va l ue af t er19 95. Th e Bi l tho us e s a l s o c o nt e nd tha tS &E c o nt i nu ed bus i ne ss o per at i o ns thr o ug h 1 99 5 an d 1 99 6 by pur su i ng an d w or kin g on p riv at e c on st ru c tio n p roj ec ts th ro u gh SC I, a di vi si on o fS & E. ( Recal l thatS & E c ou ld not worko n pu bl i c p roj ects bec ause the b ondingco m panie s s topped i ssui ng bo nd s fornew p ro j ec ts i n 199 5. ) Thi s i s a cl ose r i s s u e b e c a u s e c o n t i n u e d o p e r a t i o n s o fa c o mpa n y mi g ht i nd i c a t e tha tthe r e wa s a r e a s o nab l e h o pe a nd p o s s ib i l i ty ofsucce ss. Se e B enj am in , 7 0 F
. 2d at7 19

- 20 ( soapst one c o m p an y tha t con tinu ed to take op tions an d exp lore f orso apstone ev en aftershutting d ow n i ts m i l l i n 192 6 d id n ot becom e w orthless for tax p urp oses u nt il1927). H ow ever, there is no obj ective evid en ce in th e record that w oul d al l ow us to asce rt ain w h ether S CI coul d have save d S& E. The Bil thouse s pro vi de no e vi den c e of ho w m uch w or k S CI w as doi ng, w h etheri t was vi abl e, o r w hether i t re aso nabl y coul d hav e gener ate d enough12 N o. 07

- 3593

m o ne y a t so m e po i ntt o a l l o w S &E t o pa y o ffthe b o ndi ng co m pan i es an d r es um e i ts publ i c pr oj ec ts
. I nde ed, by the B il th ou ses’ ow n ad m issi on, the m ainsta y of S& E ’s busi ness w as i ts pu bl i c work, f orwh i ch i t need ed to obt ai n const ructi on bonds. I n othe r w or ds, the B ilthouse s h av e n otd em on st ra te d th at SC I rep re se n te d “a rea so n ab le hope and expectat i on” that the asset s ofS & E w oul d exceed its lia b ilitie s int h e fu tu re . M or t on , 38 B .T .A . at 1 27 8-7 9; see a lso Keeney, 11 6 F
. 2d a t 40 3 ( w hi l e ata xpayer m ay have “h o ped” t o make mone y b y hol di ngr ac es , the r e was “ no re as on ab le gr ou n d for h op in g b y t h at [th i s w ou ld ] liqu idate that e nor m ous debt; and onl y s o w oul d t he st ock bec om e of an y value.”). W e a c kn ow led ge th at th er e w as n o d efin itiv e e ve n t in thi s ca se that m i gh t h ave si gnal ed to i nvest or s in 199 5 th atthe i r s ha r es in S& E ha d b ec o m e wor th l es s. Buto ur ex am i nati on o fthe f acts and ci rcum sta nces i n thi s ca se l eads us to concl ud e that the Bil thouse s have n ot m et thei r burden of dem onst ra ti ng tha t S & E becam e worthl ess i n 1 9 9 7r a th e r th a n 1 9 9 5
. T o th e e x t e n tth e r e wa s s o me po ss ibi l i tytha t S &E c o ul d ha ve pul l ed itsel fo uto fthe m es s i t f o und i ts el fi n by 19 95 , the re co r d do es no t demonstrat e that the poss ibi l i ty w as re aso nabl e r atherthan re m ote
. A s a r esul t, w e n eed notr each the Bi l thouse s’ ar gum ent r ega rdi ng dam age s.

I I I . C ONC L US I ON The j ud gm ent o fthe dist ri ct c ourti s AFFI RMED .
1- 15- 09