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3-Koam stipulated that $4,500 was the value of the video
games declared for U.S. Customs' purposes. At trial, Houston
testified that 3-Koam later determined the video games to have no
residual value. Thus, it appears that the $90,000 was a grossly
inflated amount compared to the video games' actual value.
In sum, based on the entire record and the facts discussed
herein, petitioner has failed to meet its burden of proving that
the alleged research and development transaction entered into by
3-Koam with Inkax had economic substance. Accordingly, we
sustain respondent's determination with respect to this issue.
Issue 2. Bad Debt Deduction
Respondent determined that 3-Koam may not deduct $30,000 as
a bad debt on its 1990 Form 1065, because petitioner failed to
establish that 3-Koam made a bona fide business loan.6
Petitioner asserts that 3-Koam properly deducted on its 1990 Form
1065, a business bad debt that was owed to 3-Koam by Sue and
became worthless in 1990.
Section 166(a) and the regulations thereunder allow a
taxpayer to deduct all or part of any "bona fide" debt that
becomes worthless during the taxable year. See Calumet Indus.,
Inc. v. Commissioner, 95 T.C. 257, 284 (1990). For purposes of
6 In the alternative, respondent argues that 3-Koam has not
shown worthlessness during 1990 as required by sec. 166(a)(1).
We find, as discussed in the opinion herein, that 3-Koam did not
make a bona fide business loan. Thus, we do not find it
necessary to address the issue of worthlessness.
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