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short-term capital loss. Sec. 166(d). The amount of an allowable
bad debt deduction is governed by the adjusted basis of the debt
as determined under section 1011. Sec. 166(b).
Petitioners apparently concede that their advances to
Riviera were contributions to capital, rather than loans from
petitioners to Riviera. Our own review of the record leads us to
believe that the advances were in fact contributions to capital,
rather than loans. As the Court stated in Calumet Indus., Inc.
v. Commissioner, supra at 287, "We find that as an economic
reality the advances in the instant case were placed at the risk
of the business of the company and that it is unlikely that
disinterested investors would have made loans * * * on terms
similar to those on which the advances were made." Accordingly,
we do not consider section 166 applicable to the Riviera
transactions.
With respect to Arizona Marine, this Court has long held
that where there is a mutual agreement of settlement and the
agreement provides for the release of a debt for satisfactory
consideration, a bad debt deduction is not allowed. Harrison v.
Commissioner, 59 T.C. 578, 593 (1973); Northwest Equip. Co. v.
Commissioner, 34 B.T.A. 371 (1936). Aside from all else, we find
that the Arizona Marine obligation was released by petitioners in
exchange for satisfactory consideration in the form of money and
property. Therefore, this transaction does not entitle
petitioners to a bad debt deduction.
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