Harry D. Bledsoe and Annie L. Bledsoe - Page 9

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            gasohol plant.  Respondent agrees that this loan would be                                   
            deductible to the extent that it became worthless in 1987.  We                              
            must decide whether any part of Resthaven's loan to Kamas became                            
            worthless in 1987.  Sec. 166(a).  Petitioners bear the burden of                            
            proving that Resthaven's loan to Kamas became worthless in 1987.                            
            Rule 142(a).                                                                                
                  Respondent argues that there were no identifiable events in                           
            1987 that would support a finding that $55,000 of the $110,000                              
            debt was worthless.  Respondent contends that the only event                                
            which would have evidenced the loan's worthlessness was Kamas'                              
            bankruptcy discharge in 1992 and that the events relied on by                               
            petitioners are speculative.  We disagree.                                                  
                  In 1987, the gasohol plant project did not proceed because                            
            it lost its government backing.  Petitioner asked Kamas to pay                              
            the loan back, and Kamas could not pay the principal or the                                 
            interest.  During 1987, petitioner also discovered that Kamas had                           
            substantial financial obligations to a bank.  Because the bank                              
            could not collect its debt from Kamas, petitioner believed that                             
            Resthaven would not collect its debt.  By late 1987, the loan to                            
            Kamas was approximately 1 year old and no payments had been made.                           
            After discussions with his accountant, petitioner expected that                             
            Resthaven would collect only half of the $110,000 debt.                                     

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