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worthlessness must be determined objectively, not subjectively,
and although the taxpayer must exercise business judgment in
determining in the first instance whether to take a deduction, he
is not required to be an "incorrigible optimist". S.S. White
Dental Manufacturing Co., 274 U.S. at 403. The worthlessness of
the debt must be determined as of the time the deduction is
taken. Estate of Scofield v. Commissioner, 266 F.2d 154, 163
(6th Cir. 1959), affg. in part, revg. in part 25 T.C. 774 (1956).
However, subsequent events may be considered to test the
soundness of the decision. American Offshore, Inc. v.
Commissioner, 97 T.C. 579, 597 (1991).
The taxpayer must demonstrate that the debt had value at the
beginning of the year in which the taxpayer claimed
worthlessness, and that the debt became worthless in that year.
American Offshore, Inc. v. Commissioner, supra at 593; Dustin v.
Commissioner, supra at 501. A taxpayer may deduct a bad debt
only in the year it in fact becomes worthless. American
Offshore, Inc., supra at 594. The opinion in that case sets
forth an extensive list of factors that have been considered in
determining worthlessness. Id. Factors that are relevant in
this case include the value of any collateral securing the debt,
the financial condition of the debtor, the bankruptcy or
receivership of the debtor, and lack of assets. Id. at 594-595.
The taxpayer has the burden of proving the year of worthlessness.
Rule 142(a); Crown v. Commissioner, 77 T.C. 582, 598 (1981).
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