- 30 -
Estate v. Commissioner, 59 T.C. 195, 200 (1972). Consideration
must be given to the debtor's potential for improving its
financial position. Dustin v. Commissioner, 53 T.C. 491, 502
(1969), affd. 467 F.2d 47 (9th Cir. 1972).
Based on our review of the record, we hold that at least
$5 million of the advances was worthless as of the close of
petitioner's 1987 taxable year. See American Processing & Sales
Co. v. United States, 178 Ct. Cl. 353, 371 F.2d 842 (1967); see
also Baldwin v. Commissioner, T.C. Memo. 1993-433; Moffat v.
Commissioner, T.C. Memo. 1965-183, affd. 373 F.2d 844 (3d Cir.
1967). The record leads us to conclude that Kenilworth was
insolvent at the end of petitioner's 1987 taxable year, and that
the cause of Kenilworth's insolvency was the Crash, which was
sudden and unexpected. It was reasonable for the Board (on
behalf of petitioner) to conclude that Kenilworth was unable to
pay any of this $5 million in the future. The Board arrived at
its conclusion of worthlessness through the exercise of sound
business judgment. The Board considered all of the pertinent
information that was reasonably obtainable at the time, including
Kenilworth's potential for improving its financial position, and
it consulted petitioner's advisers including petitioner's
independent certified public account.
We hold for petitioner on this issue.
3. Additions to Tax
Page: Previous 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 NextLast modified: May 25, 2011