Halliburton Co. v. Commissioner

In 1976, Halliburton (plaintiff), an oilfield-service company, invested $955,000 to acquire a 25 percent stake of an Iranian barite-mining enterprise called Doreen/IMCO. Halliburton also loaned Doreen/IMCO approximately $7 million between 1977 and 1979. As a result of the Islamic Revolution that began in Iran in late 1978, Doreen/IMCO was expropriated in May 1979. In November 1979, hostages were seized at the American embassy in Tehran, and President Carter froze about $12 billion in Iranian assets soon after. Although many American companies filed lawsuits to obtain prejudgment attachments, Halliburton did not do so because there was no legal forum in which it could have pursued its expropriation claim against Iran at that time. On its tax return for 1979, Halliburton deducted $955,000 for the capital loss of its Doreen/IMCO stock and $6,913,116 for the bad debt. In 1981, pursuant to the Algiers Accords, the hostages were released, and the Iran–United States Claims Tribunal was established to process claims by Americans against Iran. In November 1981, Halliburton filed a claim to recover the Doreen/IMCO losses. In 1984, Halliburton was awarded $2,955,000 to settle its claims, and it reported the award on its tax return for that year. The commissioner of internal revenue (defendant) disallowed the deductions in 1979, stating that Halliburton had a viable claim for reimbursement of the losses as of the end of 1979. Halliburton filed suit, and the tax court held that the deduction in 1979 was allowable because Halliburton had no reasonable prospect of being reimbursed that year.