- 4 -
proving, first, that a bona fide debt existed and, second, that
it became worthless in 1987. 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
are the existence of security or collateral, the demand for
repayment, records that may reflect the transaction as a loan,
and the borrower's solvency at the time of the loan. See Road
Matls., Inc. v. Commissioner, 407 F.2d 1121 (4th Cir. 1969),
affg. in part, vacating in part and remanding T.C. Memo. 1967-
187; Jewell Ridge Coal Corp. v. Commissioner, 318 F.2d 695, 699
(4th Cir. 1963), affg. T.C. Memo. 1962-194; Zimmerman v. United
States, 318 F.2d 611, 613 (9th Cir. 1963); Montgomery v. United
States, 87 Ct. Cl. 218, 23 F. Supp. 130 (1938).
Page: Previous 1 2 3 4 5 6 Next
Last modified: May 25, 2011