Articles Tagged with Chicago fraud and breach of fiduciary duty lawyers near Highland Park

A business made loans to the son of its founder and never required the loans to be repaid. The business later attempted to write off the loans as bad debts or as ordinary and necessary business expenses. The IRS pursued the business, seeking $92 million in back taxes. The company petitioned the tax court, but after a trial the court upheld the agency’s determination, finding that the debts could not be written off because the company and the founder’s son lacked a bonafide creditor-debtor relationship. The company appealed and the appellate panel affirmed, finding that the company routinely deferred payment or renewed promissory notes without any receipt of payments and that it did not expect to be repaid unless various other events occurred. The panel determined that the company had not shown that it presented sufficient existence of a bonafide relationship to the tax court and it, therefore, affirmed the decision of the lower court.

Ron Van Den Heuvel’s father founded VHC in 1985 to provide services to the paper manufacturing industry. Ron and his four brothers all worked for VHC or its subsidiaries in some capacity, but Ron found particular success. Ron started at two of VHC’s subsidiaries, directed a number of its other companies, and launched his own companies separate from VHC. Between 1997 and 2013, VHC advanced $111 million to Ron and his companies. The payments fulfilled several purposes, including paying debts owed by both Ron and his companies. Ron and his companies would come to owe VHC $132 million, with interest, by 2013, but would only repay $39 million.

In 2004, VHC began writing off its payments to Ron as “bad debts,” ultimately writing off $95 million by 2013. After an audit, the IRS issued a notice of deficiency to VHC rejecting $92 million of the write-offs. VHC petitioned the tax court, and after a ten-day bench trial, the tax court upheld the agency’s deficiency finding. The court determined that Ron’s debts could not be written off because VHC and Ron lacked a bonafide debtor-creditor relationship. VHC then appealed. Continue reading ›

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