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of the U.S. Bankruptcy Code and subsequent to the year at issue
was converted to a chapter 7 bankruptcy, proceeds of $17,756 were
held by the bankruptcy trustee for distribution to the creditors
of the bankruptcy estate. None of these proceeds had been
distributed at the time of trial of this case. It is likely that
petitioner will ultimately receive some amount from the
bankruptcy estate to apply to his indebtedness. Petitioner did
not have to be "an incorrigible optimist" to anticipate the
possibility of a recovery. See United States v. S.S. White
Dental Manufacturing Co., 274 U.S. 398, 403 (1927). For the year
1990, the Court holds that petitioner's claim against Ms.
Marshall was not wholly worthless, thus precluding a deduction
under section 166. Sec. 1.166-5(a)(2), Income Tax Regs.7
Respondent, therefore, is sustained on this issue.8
7
In so holding, the Court recognizes that the bankruptcy
trustee has taken the position that petitioner did not have a
valid deed of trust on Ms. Marshall's interest in the three
Knoxville, Tennessee, properties, and, therefore, petitioner's
claim of $18,913.02 (of the original $38,000 loan) was not a
secured claim. However, the record further shows that the
trustee was willing to negotiate his position that the claim was
unsecured.
8
The Court has considered whether petitioners might be
entitled to a deduction for a loss under sec. 165(a). Sec.
165(c)(2) provides generally that, in the case of an individual,
the deduction for a loss shall be limited to "losses incurred in
any transaction entered into for profit, though not connected
with a trade or business". In Spring City Foundry Co. v.
Commissioner, 292 U.S. 182 (1934), the Supreme Court held that
the predecessors of secs. 165 and 166 are mutually exclusive in
that a bad debt, although a loss, cannot be deducted under the
(continued...)
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