- 20 -
Petitioners’ brief makes the following statement about
Drexel’s financial condition on December 31, 1989: “Drexel’s
true financial condition as of December 31 was -- and still is --
anyone’s guess.” However, worthlessness is determined on the
basis of objective standards, Dustin v. Commissioner, 53 T.C. at
501, and a guess as to the debtor’s financial condition does not
establish reasonable grounds for abandoning any hope that the
debt will be paid in the future. See Estate of Mann v. United
States, 731 F.2d at 276. Petitioners cannot satisfy their burden
of proof by simply showing that petitioner had a good faith
subjective belief that the note was worthless. Fox v.
Commissioner, supra at 822. We accordingly sustain respondent’s
determination for petitioners’ 1989 taxable year.9
Petitioners alternatively argue that the note became
worthless during 1990 and that they are therefore entitled to a
bad debt deduction pursuant to section 166 for that year.
Petitioners argue that Drexel’s filing for protection pursuant to
chapter 11 on February 13, 1990, was the “single identifiable
event” upon which the determination of the worthlessness of the
note should be made. Petitioners argue that the size of the
9
Respondent determined the 1989 deficiency in petitioners’
Federal income tax using a basis for the shares of $116,528,
which was also the amount claimed in petitioners’ initial amended
return for 1989. Respondent, however, does not seek to modify
that determination to take account of the basis of $116,504 for
the shares as reflected in a later amendment to the return.
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011