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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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