Opinion ID: 73566
Heading Depth: 2
Heading Rank: 1

Heading: 2d 636, 640-41 (1971).

Text: 3 We disagree. We do not think the first sentence means that the advances were made to equity on 11/1/91. We think as of 11/1/91 is the date for calculating BCBI's liability, not the date of the capital transfer because as of 11/1/91 immediately follows due [Plante].4 And, if as of 11/1/91 meant the transfer took place on 1 November, the Agreement would probably be written on 11/1/91. Also, if the advances were transferred to equity on 1 November, as Plante contends, then the buyer would not have been concerned about BCBI's potential liability to Plante on 12/20/91. So, the advances were made into capital contributions on 20 December 1991. Regardless of whether the advances were debts at one time, the advances were characterized at closing as capital contributions. Tendering the notes, accrued interest and capital lease to the buyer—the words of the second sentence of the Stock Purchase Agreement—was a way to implement the buyer's and seller's plan to extinguish potential debts of BCBI to Plante. No inconsistency or ambiguity, therefore, exists in the pertinent provision. Having made his decision to treat the advances to BCBI as capital contributions to close the million-dollar deal, Plante cannot now look for recoupment from the IRS. Plante's second argument to avoid the Danielson rule is that the Danielson rule should not apply in this case. He notes, correctly, that one purpose of the Danielson rule is to prevent the IRS from being whipsawed: litigating against two parties, like Plante and BCBI, to collect tax from only one party. Plante asserts BCBI was insolvent. Then, he argues that the Danielson rule does not apply if the corporation was insolvent before and after the notes were canceled because cancellation of the debt will not result in a taxable income to BCBI. No danger of whipsaw exists, therefore, says Plante. The record is not plain that BCBI was insolvent before and after the sale. In any event, the Danielson rule has other purposes, however, that are applicable to this case. If a party could alter the express terms of his contract by arguing that the terms did not represent economic reality, the Commissioner would be required 4 This reading is consistent with a stipulation agreed to by Plante and the IRS: As of November 1, 1991, the petitioner had unpaid advances to the corporation totaling $475,000.00. Also, the preamble to the stipulation makes clear that the IRS did not agree that use of the word advance means loans for federal income tax purposes. 4 to litigate the underlying factual circumstances of 'countless' agreements. North Am. Rayon Corp. v. Commissioner, 12 F.3d 583, 587 (6th Cir.1993). Also, business agreements are often structured with an eye toward the tax consequences of the agreement.5 Allowing one party to realize a better tax consequence than the consequence for which it bargained is to grant a unilateral reformation of the agreement, which considerably undermines the certainty of business deals.6 Danielson, 378 F.2d at 775. Plante raises a number of other arguments in Sections A, E, and F of his brief, as well as arguments about other interpretations of the Danielson rule, about alternate constructions of the Stock Purchase Agreement, and about extrinsic evidence. We have considered these arguments, but we cannot agree with the arguments.7 We conclude that Plante's advances were a capital contribution and, therefore, Plante was not entitled to a business bad-debt deduction and associated carryover losses. We AFFIRM. 5 The Stock Purchase Agreement was negotiated with an eye to the tax consequences. According to Plante's brief: The terms of the Stock Purchase Agreement were dictated by [the buyer] to gain tax and other advantages. 6 We think these reasons for the Danielson rule also refute Plante's arguments based on Comdisco, Inc. v. United States, 756 F.2d 569 (7th Cir.1985) (investment-tax-credit case). 7 We are unpersuaded by Plante's arguments based on Giblin v. Commissioner, 227 F.2d 692 (5th Cir.1955). Giblin is distinguishable from this case because Giblin's debt cancellation, apparently, was not specifically characterized as a capital contribution and because it was clear from the Giblin record—as it is not clear here—that the corporation was insolvent before and after the cancellation. We are more persuaded by Lidgerwood Mfg. Co. v. Commissioner, 229 F.2d 241 (2d Cir.1956). Also, Giblin pre-dates our adoption of the Danielson rule. See Spector v. Commissioner, 641 F.2d 376 (5th Cir.1981). 5