Derwyn J. Booker - Page 16

          does not give rise to any deductions or investment tax credits.             
          Respondent is sustained on this issue.                                      
          Issue 2.  Carter                                                            
               Section 166(a) allows a deduction for any debt which becomes           
          worthless within the taxable year.  The deduction is allowable              
          only in respect of a bad debt owed to the taxpayer.  Sec. 1.166-            
          1(a), Income Tax Regs.  A bona fide debt is a debt arising from a           
          debtor-creditor relationship based upon a valid and enforceable             
          obligation to pay a fixed or determinable sum of money.  Sec.               
          1.166-1(c), Income Tax Regs.  Petitioner bears the burden of                
          proving, first, that a bona fide debt existed, and second, that             
          it became worthless in 1984.  Rule 142(a); Crown v. Commissioner,           
          77 T.C. 582 (1981).                                                         
               In determining whether a debtor-creditor relationship                  
          represented by a bona fide debt exists, the Court considers the             
          facts and circumstances.  Fisher v. Commissioner, 54 T.C. 905,              
          909 (1970).  The test in making such a determination is whether             
          the debtor is under an unconditional obligation to repay the                
          creditor and whether the creditor intends to enforce repayment of           
          the obligation.  Id. at 909-910;  sec. 1.166-1(c), Income Tax               
          Regs.  The objective indicia of a bona fide debt include whether            
          a note or other evidence of indebtedness existed and whether                
          interest was charged.  See Clark v. Commissioner, 18 T.C. 780,              
          783 (1952), affd. 205 F.2d 353 (2d Cir. 1953).  Also considered             
          are the existence of security or collateral, the demand for                 

Page:  Previous  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  Next

Last modified: May 25, 2011