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legislative grace, and petitioners bear the burden of proving
that they are entitled to any deduction claimed. New Colonial
Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
As we understand petitioners' position, they contend that
(1) the $50,000 punitive damages award constituted a nonbusiness
debt owed to petitioner by Mr. Erkel, (2) that debt became
worthless during 1991, and (3) they are therefore entitled to a
$50,000 nonbusiness bad debt deduction for 1991. Respondent does
not dispute that the $50,000 punitive damages award constituted a
debt owed to petitioner by Mr. Erkel within the meaning of
section 166. However, respondent contends that petitioners are
not entitled under section 166 to a deduction for 1991 with
respect to that debt because (1) they failed to establish that
the punitive damages award became a worthless debt during 1991
within the meaning of that section, (2) they did not include any
portion of the punitive damages award in their gross income for
Federal income tax purposes, and (3) they failed to establish
that they had any basis in the punitive damages award.4
4 Respondent notes on brief that it is not clear to her whether
petitioners are also taking the position that they are entitled
to a $50,000 deduction for 1991 under the general loss provisions
of sec. 165(a) for the punitive damages award at issue. Conse-
quently, respondent also contends on brief that if petitioners
were advancing any such position, it would be unsupported and
must be rejected. While we do not agree with respondent that
petitioners also are relying on sec. 165(a) in this case, we do
agree with respondent that any such position would be without
merit.
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