Howard Bugbee (plaintiff) owned a bar, where he first met Paul Billings in 1957. Bugbee and his wife were not wealthy and lived off moderate means. Over the next few years, Bugbee and Billings became friends, and Billings became the godfather to one of Bugbee’s children. Even though Billings was unemployed, Bugbee believed that Billings had some good business ideas and decided to loan him money. Billings did not pay interest on the first few loans, but Bugbee continued to loan more money to Billings. From 1958 to 1960, Bugbee lent Billings a total of $19,750 through 11 formal, unsecured notes with at least 6 percent interest. Bugbee expected to be repaid once one of Billings’s business ventures was successful, but Billings was obligated to repay Bugbee regardless of success. However, Billings did not repay any of the principal or interest. Bugbee deducted the loans to Billings as a personal bad debt on his federal tax return. The commissioner of internal revenue (commissioner) (defendant) disallowed the deduction. Bugbee filed a petition challenging the commissioner’s disallowance.