In the 

United States Court of Appeals 

For the Seventh Circuit ____________________ 

Nos. 18-3717 & 18-3718 

VHC, INC., 

Petitioner-Appellant, 

v.

COMMISSIONER OF INTERNAL REVENUE, 

Respondent-Appellee. 

____________________ 

Appeals from the United States Tax Court. 

Nos. 4756-15 & 21583-15 — Kathleen Kerrigan, Judge. 

____________________ 

ARGUED JUNE 10, 2020 — DECIDED AUGUST 6, 2020 

____________________ 

Before FLAUM, BARRETT, and ST. EVE, Circuit Judges. 

BARRETT, Circuit Judge. For more than a decade, Ron Van 

Den Heuvel received cash payments from VHC, a company 

founded by his father and owned by his family. These payments primarily supported Ron’s business ventures but also 

helped him pay personal taxes and cover other personal expenses. Ron didn’t pay VHC back, and the company wrote 

down these payments as “bad debts” for which it received tax 

deductions. After a years-long audit, the IRS concluded that 

VHC never intended to be paid back and that these payments 
2 Nos. 18-3717 & 18-3718

were not bona fide debts qualifying for the deduction. The 

Tax Court upheld this determination and rejected VHC’s alternative theories as to why the payments qualified for a deduction. We see no error in this decision and affirm the Tax 

Court’s judgment. 

I. 

Ron Van Den Heuvel’s father founded VHC in 1985 to 

provide services to the paper manufacturing industry. Ron 

and his four brothers have all worked for VHC or its subsidiaries in some capacity, but Ron found particular success. He 

started two of VHC’s subsidiaries, directed a number of its 

other companies, and launched his own companies separate 

from VHC. 

Between 1997 and 2013, VHC advanced $111 million to 

Ron and his companies. These payments took several forms 

and fulfilled several purposes, including paying debts owed 

by both Ron and his companies. Ron and his companies 

would come to owe VHC $132 million, including interest, by 

2013 but would only ever repay $39 million. 

In 2002, Associated Bank, a creditor to both Ron and VHC, 

demanded that VHC guarantee all of Ron’s debts to Associated—about $27 million—as a condition of preserving VHC’s 

line of credit with Associated. VHC agreed and made similar 

arrangements a year later with two other banks. 

Ron’s companies do not appear to have turned a profit, 

and in 2004 VHC began writing off its payments to Ron as 

“bad debts,” ultimately writing off $95 million by 2013. After 

an audit, the IRS issued a notice of deficiency to VHC, rejecting $92 million of these write-offs. 
Nos. 18-3717 & 18-3718 3

VHC petitioned the Tax Court to review the agency’s deficiency determination. The court held a ten-day bench trial, 

during which VHC presented both documentary evidence 

and live witness testimony. But the Tax Court upheld the 

agency’s deficiency finding. It determined that VHC could 

not deduct the payments to Ron as “bad debts” because Ron 

and VHC lacked a bona fide debtor-creditor relationship. The 

Tax Court also rejected VHC’s alternative arguments, including its contention that its payments to Ron were ordinary and 

necessary business expenses because of VHC’s 2002 agreement with Associated. The Tax Court slightly reduced VHC’s 

liability, however, concluding that the unpaid interest accrued on the payments to Ron was not taxable as income because the debts were not bona fide. 

VHC appeals the Tax Court’s ruling, arguing that the Tax 

Court erroneously determined that the payments were not 

deductible either as bad debts or as ordinary and necessary 

business expenses, and contending that the Tax Court did not 

sufficiently reduce VHC’s interest income. 

II. 

We begin with the two avenues by which VHC argues the 

payments could have been deducted. From the outset, we 

note that a petitioner who asserts entitlement to a deduction 

faces a steep climb. Income tax deductions are “a matter of 

legislative grace and ... the burden of clearly showing the 

right to the claimed deduction is on the taxpayer.” INDOPCO, 

Inc. v. Comm’r, 503 U.S. 79, 84 (1992) (citation omitted). As a 

result, when the Commissioner makes a deficiency assessment, we place the burden on the taxpayer to prove that the 

assessment was erroneous. Cole v. Comm’r, 637 F.3d 767, 773 

(7th Cir. 2011). We give the Commissioner’s assessment a 
4 Nos. 18-3717 & 18-3718

“presumption of correctness” but shift the burden of proof to 

the Commissioner if the taxpayer can demonstrate that a deficiency assessment “lacks a rational foundation or is arbitrary 

and excessive.” Id. (citation omitted). 

In evaluating whether an assessment is arbitrary and excessive, we review legal questions de novo and factual findings for clear error, and we disturb a factual finding only if 

we are “left with the definite and firm conviction that a mistake has been committed.” Id. (citation omitted). When evaluating a claim of entitlement to a deduction, “[t]he tax court’s 

determination that a taxpayer has failed to come forward with 

sufficient evidence to support a deduction is a factual finding.” Buelow v. Comm’r, 970 F.2d 412, 415 (7th Cir. 1992). 

A. 

VHC disputes the Tax Court’s determination that its cash 

payments to Ron did not constitute loans that were deductible 

as “bad debts” when they went unpaid. In general, taxpayers 

may deduct “any debt which becomes worthless within the 

taxable year” or the nonrecoverable part of a partially worthless debt that is written off within the taxable year. I.R.C. 

§ 166(a). Treasury Regulations specify that “[o]nly a bona fide 

debt qualifies for ... section 166” and define a “bona fide 

debt” as one that “arises from a debtor-creditor relationship 

based upon a valid and enforceable obligation to pay a fixed 

or determinable sum of money.” Treas. Reg. § 1.166-1(c). The 

regulations specifically exclude any “gift or contribution to 

capital” as qualifying as a bona fide debt. Id. 

VHC’s ability to claim the deduction therefore turns on 

whether it had a debtor-creditor relationship with Ron such 

that he had an enforceable obligation to pay VHC a fixed sum. 
Nos. 18-3717 & 18-3718 5

To determine whether such a relationship exists, we look to 

“a number of factors” as “indications of intent,” and the burden to establish the presence of such indicators lies with the 

taxpayer. Busch v. Comm’r, 728 F.2d 945, 948 (7th Cir. 1984). 

For its part, the Tax Court views intrafamily transfers with 

particular skepticism. See Van Anda's Estate v. Comm’r, 12 T.C. 

1158, 1162 (1949), aff’d per curiam, 192 F.2d 391 (2d Cir. 1951)

(“Intrafamily transactions are subject to rigid scrutiny .... 

However, this presumption may be rebutted by an affirmative showing that there existed at the time of the transaction a 

real expectation of repayment and intent to enforce the collection of the indebtedness.”). 

Though the question whether a debtor-creditor relationship existed “has been variously described as one of fact and 

one of law,” we conclude that the Tax Court reached the correct conclusion under either standard. In re Larson, 862 F.2d 

112, 116 (7th Cir. 1988). The Tax Court looked to ten factors to 

determine that Ron and VHC did not have a debtor-creditor 

relationship. VHC does not confront these factors. Instead, it 

argues that the Tax Court’s reliance on indicia of a debtorcreditor relationship prevented it from seeing the forest for 

the trees and that the only relevant factor is the intent of the 

parties. 

We need not belabor the other factors upon which the Tax 

Court relied—even under VHC’s own theory it still loses. It 

contends that it held out to third parties that the advances 

were debts and signed promissory notes, indicating that it believed the advances to be debt for which it expected to be repaid. But, as the Tax Court noted, the way that VHC described 

the advances does not match the way that VHC and Ron 

treated these payments. For example, the Tax Court noted 
6 Nos. 18-3717 & 18-3718

that, though many of the promissory notes had fixed maturity 

dates, VHC routinely deferred payment or renewed the notes 

without any receipt of payment. Further, the Tax Court 

pointed to evidence that VHC did not expect to be repaid unless various other events occurred, such as Ron securing additional investments and projects. But, as we have described, 

this sort of relationship is that of an investor, not of a creditor: 

“[T]he creditor expects repayment regardless of the debtor 

corporation’s success or failure, while the investor expects to 

make a profit ... if, as he no doubt devoutly wishes, the company is successful.” In re Larson, 862 F.2d at 117. Though VHC 

may have described the payments as debt, it did not treat 

them as part of an ordinary debtor-creditor relationship and 

therefore did not establish that the parties intended such a relationship. 

VHC bears the burden of demonstrating that its payments 

to Ron were bona fide debts that arose from a debtor-creditor 

relationship in which it expected Ron to pay VHC back in full. 

VHC has not shown that it presented such evidence to the Tax 

Court or that the Tax Court made grave errors in its evaluation of the evidence. Because it failed to carry its burden, we 

conclude that VHC’s payments to Ron were not “bad debts” 

qualifying for a deduction. 

B. 

VHC has an alternative argument: that it could deduct its 

payments to Ron as ordinary and necessary business expenses, which are deductible under I.R.C. § 162. That provision provides a deduction for “all the ordinary and necessary 

expenses paid or incurred during the taxable year in carrying 

on any trade or business,” including salaries, travel expenses, 

rentals, and payments made for continued use or possession 
Nos. 18-3717 & 18-3718 7

of assets. I.R.C. § 162(a); see also Treas. Reg. § 1.162-1(a) 

(providing a more comprehensive list). VHC argues that Associated Bank—a creditor of both Ron and VHC—threatened 

to terminate VHC’s line of credit, forcing VHC into bankruptcy, if it did not float money to Ron to help him pay his 

own debts to Associated. 

To support its position, VHC highlights that the Tax Court 

has previously determined that payments made by a taxpayer 

for the benefit of a third party may be deductible as ordinary 

and necessary business expenses if the taxpayer benefited 

from the payment. VHC principally relies on Lohrke, in which 

the Tax Court noted that generally an expense incurred to satisfy the obligations of another taxpayer is not an ordinary or 

necessary business expense. Lohrke v. Comm’r, 48 T.C. 679, 688 

(1967); see also Baker Hughes, Inc. v. United States, 943 F.3d 255, 

263 (5th Cir. 2019) (citing Lohrke). But the Tax Court “conclude[d] that in some situations an individual may deduct the 

expenses of another person.” Lohrke, 48 T.C. at 688. To determine if a payment fell under this exception, the Tax Court 

used a two-part test. First, the court would “ascertain the purpose or motive which cause the taxpayer to pay the obligations of the other person,” then the court would determine if 

that motive constitutes “an ordinary and necessary expense 

of the [taxpayer’s] trade or business.” Id. 

Here, the Tax Court determined that VHC had neither met 

its burden to substantiate its claimed business expenses nor 

established that the claimed business expenses, if substantiated, qualified for the deduction under § 162. As for VHC’s 

substantiation of the expenses, the Tax Court noted that 

VHC’s records were “riddled with inconsistencies” and that 

documentary evidence it provided either did not support or 
8 Nos. 18-3717 & 18-3718

outright contradicted its spreadsheet purporting to list the deductible expenditures. 

VHC points generally to its summary records and spreadsheets as evidence of its expenditures. But the Tax Court has 

“repeatedly concluded that self-generated or nonitemized receipts or expense records are insufficient to substantiate expenses.” Gorokhovsky v. Comm’r, 104 T.C.M. (CCH) 87 (2012), 

aff’d, 549 F. App’x 527 (7th Cir. 2013). VHC has not pointed to 

much in the way of specific evidence to bolster these general, 

self-reported summaries, nor has it addressed the inconsistencies observed by the Tax Court, other than to comment that 

one might expect some inconsistencies in records of such 

large sums. That is not enough. VHC carries the burden to 

highlight any error by the Tax Court, and it has not done so. 

See Buelow, 970 F.2d at 415.

Even assuming VHC had substantiated these expenses, 

however, we also agree with the Tax Court that VHC’s payments to Ron did not qualify as ordinary and necessary business expenses. To qualify for this deduction, an expenditure 

must (1) be paid or incurred during a taxable year, (2) be for 

the purpose of carrying on a business, and (3) be an “expense” 

(4) that is “necessary” and (5) “ordinary.” Comm’r v. Lincoln 

Sav. & Loan Ass’n, 403 U.S. 345, 352 (1971). That Associated 

required VHC to guarantee Ron’s loans does not automatically make any related expenses ordinary and necessary, because “the fact that a payment is imposed compulsorily upon 

a taxpayer does not in and of itself make that payment an ordinary and necessary expense.” Id. at 359. What’s more, even 

if we assume that the payments were “necessary” for the purposes of § 162, VHC has made no showing whatsoever that 

such payments ordinarily occur in the paper services 
Nos. 18-3717 & 18-3718 9

industry. See United Draperies, Inc. v. Comm’r, 340 F.2d 936, 937 

(7th Cir. 1964) (“There is nothing to show that the practice was 

a normal incident to the drapery manufacturing industry or 

to suppliers of mobile home manufacturers generally.”). VHC 

counters that securing access to credit comprises an ordinary 

part of any business. But that oversimplifies what it says occurred here. VHC’s arrangement was no simple extension of 

credit by Associated. Rather, VHC and Associated entered 

into a seemingly unusual arrangement through which VHC’s 

credit depended on its support of a third party. The burden 

rested with VHC to show that its payments to support Ron 

under such an arrangement were ordinary in its industry. It 

has not done so and thus cannot establish its entitlement to 

the deduction. 

III. 

Finally, VHC argues that, if its payments to Ron did not 

create bona fide debts, it should be allowed to reduce its taxable income in the amount of any interest that accrued on the 

payments. Because VHC is an accrual method taxpayer, it deducts the accrued interest on debts once it becomes entitled to 

it, regardless of whether that interest is paid within the tax 

year. Although the Tax Court deducted the unpaid interest 

from VHC’s income, it did not deduct the relatively small 

amount of interest that Ron did pay. VHC argues that all of 

the interest should be deducted. 

The Tax Court determined that the payments to Ron 

stopped accruing interest in 2007 when VHC decided that it 

did not expect repayment. VHC has pointed to no reason why 
10 Nos. 18-3717 & 18-3718

this finding was clearly erroneous.1 And as for the interest 

that accrued before 2007, VHC asked the Tax Court to reduce 

its income only by the amount that was unpaid by Ron, not the 

total amount it now requests on appeal. VHC may have committed a tactical error by limiting its request to the Tax Court, 

but we will not search for error where the court below did 

exactly as VHC requested. See Naeem v. McKesson Drug Co., 

444 F.3d 593, 609 (7th Cir. 2006) (“[W]hen error is invited, not 

even plain error permits reversal.”). VHC asked the Tax Court 

to deduct its income only by the unpaid interest amount and 

the Tax Court did so for the period before 2007. Since we find 

no error in the Tax Court’s determination that interest accruals stopped in 2007, we will not disturb its conclusion on the 

interest deductions. 

* * * 

VHC has not demonstrated its entitlement to a deduction 

under either I.R.C. § 166 or § 162. Nor has VHC shown any 

error by the Tax Court in accounting for the interest that accrued on the payments made to Ron. We therefore AFFIRM 

the judgment of the Tax Court. 

1 VHC asserts that its records “made clear” that interest continued to 

accrue on some of the payments after 2007. But its support for that proposition is one blurry, illegible page of the record that appears to be an image of a spreadsheet. This reference shows nothing about which payments 

might have continued accruing interest or for how long, and it is nowhere 

near enough to show that the Tax Court clearly erred.