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In order for petitioners to claim a bad debt deduction, they
must show that the debt and the collateral were worthless in tax
year 1985. Wood was in severe financial distress prior to tax
year 1985; he had $3 million of debt from his partnership
transactions and $1 million of other debt, judgments were being
entered against him, and he could not get any additional
financing from the bank. Petitioners have not met their burden
of proving that the debt became worthless in 1985. Furthermore,
petitioners have not presented any evidence as to when, if at
all, the collateral became worthless.
Based on the evidence presented, we find that petitioners
failed to sustain their burden of proving that the debt became
worthless in the year at issue. Accordingly, we sustain
respondent's disallowance.
Victoria Bank Bad Debt Deduction--$50,000
Petitioners claim that they are entitled to a $50,000 bad
debt deduction when the Victoria Bank debt was paid through the
restructuring of the Weimar Bank debt. Respondent disallowed the
bad debt deduction on a number of grounds.
Petitioners' argument on this issue is vague and ambiguous.
On brief, petitioners merely argue against respondent's
assertions. Furthermore, we find that petitioners have not
proven that the payment was made other than in petitioner's
capacity as primary obligor on the debt. Accordingly,
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