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a sale of the group or of the French subsidiary alone.4 In the
circumstances, we do not give dispositive effect to the officers'
conclusion that the debt should be written off as worthless.
Petitioners have failed to make the showing required in order to
qualify for the deduction under section 166.
2. Worthless Stock
Section 165(g) provides for a deduction of the loss that
results when stock becomes worthless during the taxable year.
To establish worthlessness, the taxpayer must show not only
current balance sheet insolvency, but also the absence of any
reasonable expectation that the assets of the corporation will
exceed its liabilities in the future. Both liquidating value and
potential value are relevant in this context. Steadman v.
Commissioner, 50 T.C. 369, 376-377 (1968), affd. 424 F.2d 1 (6th
Cir. 1970); Morton v. Commissioner, 38 B.T.A. 1270, 1278-1279
(1938), affd. 112 F.2d 320 (7th Cir. 1940).
Respondent disallowed the deduction under section 165(g) on
the ground that petitioners had not shown that the stock of the
French subsidiary became worthless in FY 1984. We agree. So
long as intercompany indebtedness of more than $1 million
remained on the subsidiary's balance sheet, the extent of balance
4 When WFGI sold the stock of its Beverly Hills and New York
galleries in 1980, it capitalized the subsidiaries' intercompany
account debts.
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