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section 166(a), a "bona fide debt is a debt which arises from a
debtor-creditor relationship based upon a valid and enforceable
obligation to pay a fixed or determinable sum of money." Sec.
1.166-1(c), Income Tax Regs. Whether a bona fide debtor-creditor
relationship exists is a question of fact to be determined upon
consideration of all the pertinent facts in a particular case.
Fisher v. Commissioner, 54 T.C. 905, 909 (1970).
In the case at bar, we must determine whether the advances
to Sue were made in exchange for a bona fide debt. Petitioner
bears the burden of proof on this issue. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933); Durando v. United States, 70
F.3d 548, 550 (9th Cir. 1995).
At trial, Paik testified that he has known Sue since 1989
when they were introduced through family and friends.
Thereafter, the two met on several occasions. In November of
1989, Paik personally applied for and received a $30,000 loan
from the bank, and according to petitioner's argument, advanced
the proceeds to Sue on behalf of 3-Koam. In February of 1990,
Sue signed a $30,000 promissory note, made payable to 3-Koam.
We note that we closely scrutinize the form of an alleged
business arrangement to determine its true substance where
parties have a personal relationship, such as the one between
Paik and Sue.
At trial, Paik and Houston claimed that Sue received the
$30,000 as a loan from 3-Koam for the purpose of enabling Sue to
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