Court Opinion

ID: 4479292
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:13:35.166287+00
Date Added: 2024-06-11T15:03:32.262297
License: Public Domain

Mulroney, J., dissenting: I respectfully dissent. Stuart Enterprises stood to make about $14,000 partnership profits if the loan of money, which it borrowed at 4%-percent interest, was repaid at 12-percent interest in accordance with the loan obligation. Respondent does not argue the loan was a family accommodation. It was made for the plain purpose of securing partnership profits and it served no individual purpose of the partners apart from their partnership interests — which distinguishes this case from the authorities cited by the majority where partnership loans were involved, and it was held they were designed to serve the individual interests of the partners. I would hold any financial transaction entered into by a partnership, solely in pursuit of partnership profits, would be a business transaction of the partnership and the worthlessness of a debt involved in such a transaction would be considered a business bad debt in computing the partnership’s taxable income. I do not agree with the majority that any extent-of-activities test should be applied to see if a partnership’s transaction, which was engaged in solely for partnership profit, was a business or nonbusiness transaction. That test is applicable when the issue is whether an individual is entitled to a business or nonbusiness bad debt deduction. Leona did not and could not (S. Stanwood Menken, 8 B.T.A. 1062) take a bad debt deduction or proportionate part of a bad debt deduction for what respondent admits was a bona fide partnership loan. She took a partnership operating loss deduction and the issue is whether the partnership, in computing and reporting its taxable income was entitled to take the loss from the worthlessness of its loan as a business or nonbusiness1 bad debt deduction. The business character of the partnership loan is established by the fact that it was made for partnership profits and the business character of a partnership which is by definition an “unincorporated organization, through or by means of which any business, financial operation, or venture is carried on * * Sec. 7701(a) (2), I.R.C. 1954. I would hold Stuart Enterprises was entitled to a business bad debt deduction in computing its taxable income and consequently petitioner was entitled to her proportionate share of the partnership’s operating loss. Withex, /., agrees with this dissent.   It is to be noted see. 166(d) providing for nonbusiness bad debt losses applies to “a taxpayer otter than a corporation.” A partnership must report its taxable income, sec. 703, but it is not a taxpayer, sec. 701.