Tax Deductions – Bad Debts

By: Derek Hawkins//September 29, 2020//

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7^th Circuit Court of Appeals

Case Name: VHC, Inc., v. Commissioner of Internal Revenue

Case No.: 18-3717; 18-3718

Officials: FLAUM, BARRETT, and ST. EVE, Circuit Judges.

Focus: Tax Deductions – Bad Debts

For more than a decade, Ron Van Den Heuvel received cash payments from VHC, a company founded by his father and owned by his family. These payments primarily supported Ron’s business ventures but also helped him pay personal taxes and cover other personal expenses. Ron didn’t pay VHC back, and the company wrote down these payments as “bad debts” for which it received tax deductions. After a years-long audit, the IRS concluded that VHC never intended to be paid back and that these payments were not bona fide debts qualifying for the deduction. The Tax Court upheld this determination and rejected VHC’s alternative theories as to why the payments qualified for a deduction. We see no error in this decision and affirm the Tax Court’s judgment.

Affirmed

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Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.

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