Tax Court shuts down Broadvox’s bankruptcy loss claim
Temnorod v. Commissioner, T.C. Memo. 2025-127, No. 5114-19, 2025 BL 438676, Court Opinion
Broadvox could not run $3.162 million of bankruptcy-related payments through cost of goods sold. It had to capitalize them as part of the price of buying Infotelecom’s assets.
Holding
The Tax Court agreed with the IRS. Broadvox had to treat the $3.162 million paid to resolve Infotelecom’s AT&T and Verizon bankruptcy claims as part of the cost of acquiring Infotelecom’s assets. Broadvox could not treat those amounts as cost of goods sold or a current deduction.
Why It Matters
Service businesses usually do not have “cost of goods sold” in the tax sense. They have deductible expenses, or capital costs, or both.
Payments that function as conditions to acquiring assets generally get capitalized under §263, even if the buyer views them as settling disputes or protecting its business.
Assumed liabilities and “cure” amounts paid to get contracts and assets out of bankruptcy often become part of the basis, not current deductions.
S-corporation shareholders feel the impact directly because disallowed …
