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became worthless within the taxable year. Sec. 1.166-1(c),
Income Tax Regs.; Andrew v. Commissioner, 54 T.C. 239, 244-245
(1970). The Court is satisfied that there was a debtor-creditor
relationship and that the corporation owed a genuine debt to
petitioner.3
The first question is the year in which the $122,682.75 debt
became worthless. Respondent contends that the debt became
worthless in 1985. Petitioner contends the debt became worthless
in 1989. The Court agrees with respondent. In 1985, the
corporate receiver reported there were no assets of the judgment
debtors upon which the judgment could be collected and that
collection efforts would not be worthwhile. The receiver was of
the opinion that the judgment was virtually worthless. Based on
the receiver's opinion, the receivership was terminated, and the
judgment was transferred to petitioner. The Court finds that,
when the receiver established, in 1985, that the corporation had
no assets other than the worthless judgment, the debt owing by
3
At trial, counsel for respondent asserted, for the first
time, that petitioner's advances of $111,000 constituted capital
contributions to the corporation. The Court rejects that
contention. The Court is satisfied that the "investment
certificates" constituted loans and were not capital
contributions. With respect to the $11,682.75 in legal expenses
paid by petitioner, the Court concludes that those expenses were
so closely related to the advances petitioner made to the
corporation that such expenses "assume identical characteristics"
as the $111,000 advances, so that the two components of
petitioner's claimed deductions are accorded identical treatment.
See Blauner v. Commissioner, T.C. Memo. 1967-156; see also Ander
v. Commissioner, 47 T.C. 592 (1967).
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