- -26
We find that petitioner has satisfied his burden of proving
a bona fide debt. Petitioner offered into evidence the $70,000
promissory note signed by Mr. Kluzak that carried interest at 12
percent per annum. The note provided that the principal payment
was due on or before October 6, 1987. Petitioner demanded
payment from Mr. Kluzak in October 1987 when payment became due.
Petitioner testified that he investigated Mr. Kluzak's financial
circumstances in late 1986 when the original loan was
renegotiated and found that he had a net worth of several million
dollars. There is no contradictory evidence, and this evidence
combined with the payments of interest and principal on the
original note is sufficient to show that the note had value in
October 1986 when it was given.
Respondent maintains that, even if the debt was bona fide,
the debt was not worthless in 1987 when petitioners took the bad
debt deduction. Respondent contends that petitioner did not take
the necessary steps to determine whether the debt was worthless.
Two factors must be established to support a deduction for
worthlessness: (1) The fact of worthlessness and (2) the timing
of worthlessness. The conclusions depend on the particular facts
and circumstances of the case, and there is no bright-line test
or formula for determining worthlessness within a given taxable
year. Lucas v. American Code Co., 280 U.S. 445, 449 (1930).
However, it is generally accepted that the year of worthlessness
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