Ramig v. Commissioner , 496 F. App'x 756 ( 2012 )

NOT FOR PUBLICATION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.
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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.