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check because Machuca's account lacked sufficient funds. The
relationship between petitioner and Machuca deteriorated around
this time.
In 1988, petitioner experienced financial difficulties. She
did not file her 1987 Federal income tax return until September
1991 because she was unable to pay the taxes due. On the return
filed in 1991, petitioner claimed $77,000 on Schedule D, Capital
Gains and Losses and Reconciliation of Forms 1099-B, as a
nonbusiness bad debt deduction. In an amended return filed in
September 1993, petitioner reclassified $50,000 of the $77,000
bad debt as business bad debt. No documentation or other
evidence of the bad debt exists.
OPINION
Bad Debt Expense
Section 166(a) provides a deduction for any debt that
becomes worthless within the taxable year. At trial, petitioner
conceded that there was no basis for classifying as a business
bad debt any portion of the bad debt deduction that she claimed.
A nonbusiness bad debt is considered a loss from the sale or
exchange of a short-term capital asset. Sec. 166(d)(1)(B).
"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. Petitioner bears the burden of
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