- 26 - a sale of the group or of the French subsidiary alone.4 In the circumstances, we do not give dispositive effect to the officers' conclusion that the debt should be written off as worthless. Petitioners have failed to make the showing required in order to qualify for the deduction under section 166. 2. Worthless Stock Section 165(g) provides for a deduction of the loss that results when stock becomes worthless during the taxable year. To establish worthlessness, the taxpayer must show not only current balance sheet insolvency, but also the absence of any reasonable expectation that the assets of the corporation will exceed its liabilities in the future. Both liquidating value and potential value are relevant in this context. Steadman v. Commissioner, 50 T.C. 369, 376-377 (1968), affd. 424 F.2d 1 (6th Cir. 1970); Morton v. Commissioner, 38 B.T.A. 1270, 1278-1279 (1938), affd. 112 F.2d 320 (7th Cir. 1940). Respondent disallowed the deduction under section 165(g) on the ground that petitioners had not shown that the stock of the French subsidiary became worthless in FY 1984. We agree. So long as intercompany indebtedness of more than $1 million remained on the subsidiary's balance sheet, the extent of balance 4 When WFGI sold the stock of its Beverly Hills and New York galleries in 1980, it capitalized the subsidiaries' intercompany account debts.Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Next
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