Wally Findlay Galleries International, Inc. and Subsidiaries - Page 16

                                       - 16 -                                         

          under section 166.  Dixie Dairies Corp. v. Commissioner, 74 T.C.            
          476, 493 (1980); sec. 1.166-1(c), Income Tax Regs.  Petitioners             
          bear the burden of proof on all issues.  Rule 142(a).                       
               In her notice of deficiency, respondent disallowed                     
          petitioners' deduction of the intercompany account balance in               
          FY 1984 on the grounds that either (1) the amounts reflected in             
          this account were contributions to capital rather than debts, or,           
          alternatively, (2) if they were bona fide debts, they did not               
          become worthless during FY 1984.  Because we sustain respondent's           
          determination on the alternative ground that petitioners have not           
          shown that any debt evidenced by such amounts became worthless              
          during the relevant tax year, we need not reach the question of             
          the true character of the amounts at issue.  For purposes of this           
          Opinion, we shall assume that they were debts.                              
               Petitioners defend the determination of the officers of WFGI           
          that the intercompany debt was worthless largely for the same               
          reasons that the officers cited in support of it at the time.  We           
          are not persuaded that those reasons prove that the debt became             
          worthless during FY 1984.  They are marred by inconsistencies,              
          questionable inferences, and failure to use available information           
          of obvious importance.                                                      
               In order to establish that the intercompany debt was                   
          worthless, petitioners must prove that no portion of it was                 
          reasonably recoverable.  The excess of other liabilities over               

Page:  Previous  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  Next

Last modified: May 25, 2011