Maria D. Lerma - Page 3

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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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