- 15 -
appointed in October 1987, and liquidation procedures were
completed by 1990. WFGI continued to use the premises for a
purchasing office until 1995. At the time of trial, it still
retained the lease.
OPINION
1. Bad Debt
A deduction is allowed for a debt that becomes worthless
during the taxable year. Sec. 166(a)(1).2 A debt is worthless
when there is no longer any reasonable expectation of recovery.
Dallmeyer v. Commissioner, 14 T.C. 1282, 1292 (1950); Tejon Ranch
Co. v. Commissioner, T.C. Memo. 1985-207; Ruane v. Commissioner,
T.C. Memo. 1958-175. Because the determination of worthlessness
calls for the exercise of business judgment, courts have tested
the taxpayer's determination for the elements of sound business
judgment: consistency, the use of all available information, and
the reasonableness of the inferences drawn from the information.
See, e.g., Riss v. Commissioner, 478 F.2d 1160, 1166 (8th Cir.
1973), affg. in part 56 T.C. 388 (1971); Minneapolis, St. Paul &
Sault Ste. Marie R.R. Co. v. United States, 164 Ct. Cl. 226
(1964); Production Steel Inc. v. Commissioner, T.C. Memo. 1979-
361. Only bona fide indebtedness can give rise to a deduction
2 The authority of the Secretary to allow a deduction for
debts that are only recoverable in part is not at issue in this
case. See sec. 166(a)(2).
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