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On Schedule C, Profit or Loss From Business, of their 1990
return, petitioners claimed a business bad debt deduction in the
amount of $100,000. This $100,000 represents a portion of the
unpaid loans made to HTC. The Commissioner's determination of
deficiency in the amount of $10,962 is based primarily upon the
disallowance of this $100,000 bad debt deduction claimed by
petitioners.5
At the calendar call of this case the parties orally
stipulated that the debts of HTC amounted to $133,000 at the end
of 1990, and that none of that amount had ever been repaid to
petitioners. However, that oral stipulation fails to specify how
much of the $133,000 consists of unpaid interest.6
Section 166(a) allows "as a deduction any debt which becomes
worthless within the taxable year." Section 1.166-1(c), Income
Tax Regs., requires that the debt be a bona fide one. The
5 The Commissioner also disallowed other deductions claimed
on Schedules A and C. Petitioners have conceded these other
deductions in their opening brief. The Commissioner concedes
that petitioners are entitled to a charitable contribution
deduction in the amount of $733, which had previously been
disallowed.
6 Since it does not appear that petitioners were other than
cash basis taxpayers, any unpaid accrued interest would not have
been included in their gross income. Therefore, no deduction
would in any event be allowable for a loss based upon unpaid or
unrealized income, in accordance with the long established
principle that no deduction for a loss is allowable in respect of
an item of unrealized income. Hort v. Commissioner, 313 U.S. 28,
32-33 (1941); Hutcheson v. Commissioner, 17 T.C. 14, 19 (1951);
Lewicki v. Commissioner, T.C. Memo. 1974-86 (unrealized
interest).
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