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the corporation to petitioner also became worthless. At that
time, it was clear that the debt to petitioner would never be
repaid. Petitioner argues that the debt became worthless in 1989
when the Florida attorney informed him that the judgment was not
collectible because of lack of assets held by the judgment
debtors. However, petitioner did not present any evidence to
demonstrate what circumstances, if any, existed between 1985 and
1989 to suggest that there was any chance of recovering the
judgment. Accordingly, the Court holds that the debt of
$122,682.75 owed to petitioner became worthless in 1985.
The second question is whether the indebtedness to
petitioner was a business or a nonbusiness indebtedness. Section
166 distinguishes between business bad debts and nonbusiness bad
debts. Sec. 166(d); sec. 1.166-5(b), Income Tax Regs. Business
bad debts may be deducted against ordinary income and are
deductible whether such debts become wholly or partially
worthless during the year. Nonbusiness bad debts may be deducted
only as short-term capital losses and only if the debts become
wholly worthless in the year claimed. Sec. 166(d). A bad debt
is characterized as business rather than nonbusiness if the debt
bears a proximate relationship to the taxpayer's trade or
business. Sec. 1.166-5(b), Income Tax Regs. In determining
whether such relationship exists, the proper measure is the
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