- -28
$90 per month. After the bankruptcy petition against Mr. Kluzak
was filed by his creditors, petitioner called the bankruptcy
court to inquire about Mr. Kluzak's case, and he determined that
Mr. Kluzak's bankruptcy was a "no asset bankruptcy" and,
therefore, any attempt to collect would be pointless. Mr. Kluzak
was discharged from bankruptcy on October 16, 1989.
We find that petitioner has not produced sufficient evidence
to show that the $70,000 note was totally worthless in 1987. No
identifiable event establishing its worthlessness occurred in
1987. We conclude, however, that petitioner's $70,000 debt
became worthless in 1988. In that year, petitioner reasonably
abandoned any hope of recovery after he discovered the likelihood
of recovery from Mr. Kluzak's bankruptcy was nil. It is clear
from the bankruptcy petition that petitioner would never have
collected any money whatsoever from Mr. Kluzak even if he had
filed a proof of claim for the debt.
Petitioner maintains that he is entitled to a business bad
debt deduction.
Whether a debt is a business or nonbusiness debt is a
question of fact. Sec. 1.166-5(b), Income Tax Regs. A business
bad debt deduction is available only if the taxpayer can
establish that: (1) He was engaged in a trade or business; and
(2) the acquisition or worthlessness of the debt was proximately
related to the conduct of such trade or business. Putoma Corp.
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