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Commissioner, T.C. Memo. 1985-346, affd. without published
opinion 823 F.2d 1552 (9th Cir. 1987); see also sec. 280E (under
which no deduction is allowed for any amount paid or incurred in
the business of drug trafficking); secs. 1.162-1(a), and 1.212-
1(p), Income Tax Regs. The fact that petitioner settled the
matter before a final order of forfeiture was entered does not
change this result. We hold for respondent on this issue.
3. Bad Debt Deduction
Respondent disallowed all of the bad debt deduction reported
on petitioner's 1987 return. Respondent determined that
petitioner did not prove that any of the amounts advanced to
Messrs. Dunn or Crowl created a bona fide loan.
Section 166(d)(1)(B) provides that "where any nonbusiness
debt becomes worthless within the taxable year, the loss
resulting therefrom shall be considered a loss from the sale or
exchange, during the taxable year, of a capital asset held for
not more than 1 year." Only a bona fide debt qualifies for
purposes of section 166. A bona fide debt "arises 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. Whether the parties actually
intended the transactions to be loans depends on whether the
advances were made “with a reasonable expectation, belief and
intention that they would be repaid". Zimmerman v. United
States, 318 F.2d 611 (9th Cir. 1963). Intent can be established
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