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customers are not, in effect, being taken twice.
Petitioners have failed to carry their burden of proving
their entitlement to a bad debt deduction. Section 166(a)
provides a deduction for any debt that becomes worthless within
the taxable year. "Only a bona fide debt qualifies for purposes
of section 166. A bona fide debt is a debt which arises from a
debtor-creditor relationship based upon a valid and enforceable
obligation to pay a fixed or determinable sum of money." Sec.
1.166-1(c), Income Tax Regs. Petitioners bear the burden of
proving, first, that a bona fide debt existed and, second, that
it became worthless in 1990. Rule 142(a); Crown v. Commissioner,
77 T.C. 582, 598 (1981); Rude v. Commissioner, 48 T.C. 165, 172
(1967) .
In determining whether a debtor-creditor relationship
represented by a bona fide debt exists, the Court considers the
facts and circumstances. Fisher v. Commissioner, 54 T.C. 905,
909 (1970). The test in making such a determination is whether
the debtor is under an unconditional obligation to repay the
creditor and whether the creditor intends to enforce repayment of
the obligation. Id. at 909-910; sec. 1.166-1(c), Income Tax
Regs.
The objective indicia of a bona fide debt include whether a
note or other evidence of indebtedness existed and whether
interest was charged. See Clark v. Commissioner, 18 T.C. 780,
783 (1952), affd. 205 F.2d 353 (2d Cir. 1953). Also considered
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