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In the present case, petitioners contend that the debt
became worthless during 1990. They rely first on the fact that
HTC was dissolved by the State of Connecticut on June 19, 1990.
They equate HTC's dissolution to bankruptcy. They argue that
section 1.166-2(c)(2), Income Tax Regs., provides that the year
of settlement in bankruptcy cases is the proper year to consider
the debt worthless, that the dissolution of their corporation is
equivalent to bankruptcy, and that a deduction should therefore
be allowed here in the same manner.
Petitioners misread section 1.166-2(c)(2), Income Tax Regs.
That section provides:
In bankruptcy cases a debt may become worthless before
settlement in some instances; and in others, only when
a settlement in bankruptcy has been reached. In either
case, the mere fact that bankruptcy proceedings
instituted against the debtor are terminated in a later
year, thereby confirming the conclusion that the debt
is worthless, shall not authorize the shifting of the
deduction under section 166 to such later year.
[Emphasis added.]
Id. Petitioners ignore the word "may" in the regulation. They
also ignore section 1.166-2(c)(1), Income Tax Regs. That section
states that "[b]ankruptcy is generally an indication of
worthlessness". Id. (Emphasis added). It has been held that
bankruptcy "is not enough by itself to establish worthlessness."
Cox v. Commissioner, 68 F.3d 128, 131 (5th Cir. 1995), affg. T.C.
Memo. 1994-189.
Petitioners next point out that the corporation had no
property with which to secure the debts. Because the corporation
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