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(the notes) purporting to document the advances as loans from
petitioner to James Trading. The notes had no fixed maturity
dates or schedules of payments. James Trading made no payments
on the notes. James Trading became insolvent and ceased doing
business on or about September 15, 1992. Petitioner claimed a
bad debt deduction, based on the alleged worthlessness of the
notes, in the amount of $57,666 for the 1992 taxable year.
Respondent determined that the notes did not constitute a bona
fide debt and thus denied petitioner's bad debt deduction.
OPINION
Petitioner claims that the notes became worthless in 1992
when James Trading became insolvent, and therefore he is entitled
to a business bad debt deduction in that year. In addition,
petitioner claims that the pass-through net losses from James
Trading are ordinary losses because petitioner was a "dealer" in
securities. Furthermore, petitioner maintains that respondent is
estopped from reclassifying his net losses for the year in
question as capital losses. Respondent contends that the
advances were not bona fide debts and therefore not deductible.
Respondent also claims that petitioner was an "investor" during
1992; thus, all losses from securities transactions in that year
were capital losses. Finally, respondent contends that
respondent is not estopped from reclassifying petitioner's net
losses.
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