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Commissioner, 478 F.2d 1160, 1166 (8th Cir. 1973), affg. on this
issue and remanding on another issue 56 T.C. 388 (1971). “The
decision must be made in the exercise of sound business judgment,
based upon as complete information as is reasonably obtainable.”
Andrew v. Commissioner, 54 T.C. 239, 248 (1970) (citing Blair v.
Commissioner, 91 F.2d 992, 994 (2d Cir. 1937)). Generally, the
taxpayer must show one or more “identifiable events” that
demonstrate the worthlessness of the debt. American Offshore,
Inc. v. Commissioner, 97 T.C. 579, 593 (1991).
If the debtor is solvent in the sense that its assets exceed
its liabilities, ordinarily no bad debt deduction is allowable to
the creditor. Perry v. Commissioner, 22 T.C. 968, 973-975
(1954); Bennett v. Commissioner, 20 B.T.A. 171, 173-174 (1930).
Although evidence demonstrating that the debtor is insolvent
points to the conclusion that the debt is worthless, see Gorman
Lumber Sales Co. v. Commissioner, 12 T.C. 1184, 1192 (1949),
insolvency is not conclusive evidence that a debt is worthless.
Cimarron Trust Estate v. Commissioner, 59 T.C. 195, 200 (1972).
The fact that the credit of a debtor is not good, and that it
does not have sufficient cash or other quick assets to pay its
debts immediately, does not necessarily make a debt worthless.
Bennett v. Commissioner, supra at 173-174; Ernst v. Commissioner,
18 B.T.A. 928, 929 (1930). Even if a debtor is shown to be
insolvent, if it is still actively engaged in business, its
insolvency does not necessarily establish the worthlessness of
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