Court Opinion

ID: 810779
Source: CourtListenerOpinion
Date Created: 2012-10-24 20:03:41+00
Date Added: 2024-06-11T10:34:54.534170
License: Public Domain

NOT FOR PUBLICATION

                    UNITED STATES COURT OF APPEALS                            FILED
                           FOR THE NINTH CIRCUIT                              OCT 24 2012

                                                                          MOLLY C. DWYER, CLERK
                                                                            U.S. COURT OF APPEALS

JOHN C. RAMIG,                                   No. 11-73898

              Petitioner - Appellant,            Tax Ct. No. 29149-08

  v.
                                                 MEMORANDUM*
COMMISSIONER OF INTERNAL
REVENUE,

              Respondent - Appellee.

              Appeal from a Decision of the United States Tax Court

                           Submitted October 11, 2012**
                                Portland, Oregon

Before: SILVERMAN, CLIFTON, and N.R. SMITH, Circuit Judges.

       John C. Ramig and Margaret T. Ramig appeal a decision of the Tax Court

denying them bad-debt deductions for advances made to ShoeS4Work and other

payments made on behalf of the company. Determination of whether an advance to

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
        **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
a business is debt or equity is a finding of fact reviewed for clear error. Bauer v.

Comm’r, 748 F.2d 1365, 1367 (9th Cir. 1984). We affirm.

      It was not clearly erroneous for the tax court to determine that the $29,600 in

advances was not a bona fide debt. The tax court determined that the balance of the

factors identified in A.R. Lantz Co. v. United States, 424 F.2d 1330, 1333 (9th Cir.

1970), favored a conclusion that the advances were equity rather than debt. Perhaps

most importantly, the financial condition of the company was such that repayment

could not be expected from the company’s earnings. Lending was not available

from an outside source, so repayment was dependent on the company raising more

capital. That weighed against a characterization of Ramig’s advances as bona fide

business loans. Though factors favoring debt may have made the issue a close call,

“[w]here there are two permissible views of the evidence, the factfinder’s choice

between them cannot be clearly erroneous.” United States v. Working, 224 F.3d

1093, 1102 (9th Cir. 2000) (en banc).

      Nor was it clearly erroneous for the tax court to determine that the

$11,273.60 in credit card charges was not debt. Though Ramig may have expected

repayment, he knew that repayment was uncertain and depended, like the

repayment of the advances discussed above, upon the company raising more

                                           2
capital. Given the circumstances, it was not clearly erroneous for the tax court to

find that the credit card charges were an equity investment.

      Judge Silverman’s dissent reaches a different conclusion, focusing on the

provision of the Key Employee Agreement placing a $50,000 limit on whatever

expenses or obligations Ramig might incur on ShoeS4Work’s behalf. Assuming

that this provision contains an implied promise to repay, that fact is outweighed by

the other factors that must be considered under A.R. Lantz. Here, the payments

charged to the credit card did not have a repayment date, ShoeS4Work was unable

to repay Ramig unless it earned money or raised additional capital, ShoeS4Work

was not obligated to pay Ramig interest, there was no satisfactory evidence that

ShoeS4Work had repaid Ramig for such charges in the past, and Ramig did not

demand repayment. It was not clearly erroneous for the tax court to find that these

factors outweighed whatever might be implied from the Key Employee

Agreement. Therefore, it was not clearly erroneous for the tax court to conclude

that the credit card charges were equity and not debt.

      Finally, it was not clearly erroneous for the tax court to determine that the

$2,500 in payments to Puget Sound Leasing was not debt. Ramig purportedly

made the payments as a guarantor for ShoeS4Work, but the Ramigs had the burden

to show that the payments were made pursuant to a guaranty agreement. See

                                          3
Brodsky v. Comm’r, T.C.M. (RIA) 2001-240, 2001 WL 1078113, at *50 (2001).

The Ramigs failed, however, to produce any documentary evidence substantiating

any such agreement.

      AFFIRMED.

                                       4
                                                                               FILED
Ramig v. Commissioner of Internal Revenue, 11-73898                             OCT 24 2012

                                                                            MOLLY C. DWYER, CLERK
SILVERMAN, Circuit Judge, concurring in part and dissenting in part:         U.S. COURT OF APPEALS

      I agree with the majority that the Tax Court was within its discretion in

finding that the unpaid promissory notes and the unreimbursed lease payments

were not proven to be deductible. Although other judges might have come to a

contrary conclusion, the court’s ruling was supported by adequate evidence and

reflected a correct understanding of the law.

      The same cannot be said of the Tax Court’s treatment of the unreimbursed

business expenses charged to Ramig’s credit card. Ramig’s key evidence on this

point was his written employment agreement that authorized him to incur expenses

for the company up to a certain amount. Pursuant to this agreement, he expected to

be reimbursed. The Tax Court did not even mention this provision of the

agreement, much less analyze its effect. For this reason, the Tax Court’s ruling

regarding the credit card charges is not entitled to deference. As I see it, both the

explicit terms of the agreement as well as ordinary business practice compel the

conclusion that Ramig expected and was contractually entitled to reimbursement of

business expenses he charged to his personal credit card on behalf of the company.

Because these charges were never reimbursed, Ramig properly deducted them as

bad debts.

      I therefore respectfully concur in part and dissent in part.