Court denies bad-debt and NOL deductions after taxpayer fails to prove loans or timing
Fussell v. Commissioner, T.C. Memo. 2025-131, No. 9700-23. BL 454169.
The Tax Court upheld a 2018 deficiency and penalties after finding that the taxpayer never proved his claimed loans were real debt or that any loss could be carried back to 2018 through an NOL.
Holding
The court sustained the IRS deficiency and additions to tax. The taxpayer failed to establish a bona fide debt under §166, failed to prove worthlessness in any year, and failed to show any NOL available for 2018.
Why It Matters
Advances to a closely held corporation must look like real loans, not equity.
Processing of an amended return does not bind the IRS for other years.
NOLs must be absorbed in the required carryback years before any carryforward.
Failing to file while disputing prior years does not excuse penalties.
Timeline
2004–2005: Taxpayer acquires Velidom stock and advances funds.
2008–2015: Company operations end. Dissolution notices issued.
2015: Taxpayer files amended returns claiming bad-debt losses.
2017–2018: Prior Tax Court case resolves 2013–2014 with no changes.
2022–2023: IRS pr…
