Dennis R. Schenk - Page 5

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                Respondent contends that petitioner is not entitled to the                   
          nonbusiness bad debt deduction because petitioner failed to                        
          demonstrate that a bona fide debt existed between petitioner and                   
          Maxted.  Further, assuming a bona fide debt existed, respondent                    
          maintains that petitioner failed to show that the debt became                      
          worthless in 1988.                                                                 
          Bad Debt                                                                           
                Section 166(a) provides a deduction for any debt which                       
          becomes worthless within the taxable year.  A nonbusiness bad                      
          debt is considered a loss from the sale or exchange of a short                     
          term capital asset.  Sec. 166(d)(1)(B).                                            
                Only a bona fide debt qualifies under section 166(a).  Sec.                  
          1.166-1(c), Income Tax Regs.  Section 1.166-1(c), Income Tax                       
          Regs., defines a bona fide debt as "a debt which arises from a                     
          debtor-creditor relationship based upon a valid and enforceable                    
          obligation to pay a fixed or determinable sum of money."  The                      
          existence of a bona fide debt is a factual inquiry that turns on                   
          the facts and circumstances of the particular case, and the                        
          taxpayer bears the burden of proving that a bona fide debt                         
          existed.  Dixie Dairies Corp. v. Commissioner, 74 T.C. 476, 493                    
          (1980); Litton Business Sys., Inc. v. Commissioner, 61 T.C. 367,                   
          377 (1973).  However, the ultimate question is whether there was                   
          a genuine intention to create a debt, with a reasonable                            
          expectation of repayment, and whether that intention comports                      





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