Frank A. Walter and Joann R. Walter - Page 5

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               Section 166(a) generally allows a deduction for any debt               
          that becomes wholly or partially worthless within the taxable               
          year.  Section 166(d)(1)(A) provides that section 166(a) shall              
          not apply to any nonbusiness debt of a noncorporate taxpayer.               
          Section 166(d)(1)(B) provides that, where a nonbusiness debt of a           
          noncorporate taxpayer becomes worthless within a taxable year,              
          the loss resulting from the worthlessness of such debt shall be             
          considered a loss from the sale or exchange during the taxable              
          year of a capital asset held for not more than one year.  For               
          purposes of section 166, the basis for determining the amount of            
          the deduction for any bad debt is the adjusted basis of the debt            
          as prescribed by section 1011 for purposes of determining the               
          loss from the sale or other disposition of property.  See sec.              
          166(b); sec. 1.166-1(d)(1), Income Tax Regs.                                
               In deciding whether petitioners are entitled for 1991 to a             
          nonbusiness bad debt deduction under section 166(d)(1)(B) for the           
          $50,000 punitive damages that were awarded to, but not collected            
          by, petitioner during that year, we need not, and do not, decide            
          whether that award constituted a valid debt owed to petitioner by           
          Mr. Erkel within the meaning of section 166(d)(1)(B) or whether             
          that award became a worthless debt during 1991 within the meaning           
          of that section.  That is because, assuming arguendo, as peti-              
          tioners and respondent maintain, that the $50,000 punitive                  
          damages award were in fact a debt and further assuming arguendo,            





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