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loan and learned in 1993 that CGCC had recently filed for
bankruptcy. On Schedule D of their 1993 return, petitioners
claimed a long-term capital loss in the amount of $11,400
relating to the demand note.
Upon examination, respondent allowed petitioners to claim
$5,700 of the $11,400 as a capital loss, representing the
principal amount of the promissory note, and disallowed the
remaining claimed loss in the amount of $5,700. Respondent does
not dispute petitioners' characterization of the loss as a long-
term capital loss.
Although petitioners did not claim the loss as a bad debt,
we believe the provisions of section 166 pertain to this
transaction. Section 166(b) provides that the basis for
determining the amount of the deduction for any bad debt shall be
the adjusted basis provided in section 1011 for determining the
loss from the sale or other disposition of property. The
"adjusted basis" of property is the property's unadjusted basis,
adjusted as provided in section 1016. Sec. 1011(a). Typically,
a taxpayer's basis in property is the cost of that property.
Sec. 1012; sec. 1.1012-1(a), Income Tax Regs. In this instance,
petitioners bear the burden of proving petitioner's basis in the
demand note. Rule 142(a).
Petitioners indicated a cost basis in the demand note in
the amount of $11,400. At trial, petitioner explained that he
was entitled to increase his basis in the demand note for
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