Robert Charles Fohrmeister - Page 4

                                        - 4 -                                         
          repaid the loan.4  Respondent determined that the loan in                   
          question did not become worthless in whole or in part during the            
          year in question, and disallowed the claimed bad debt deduction.            
               As a general rule, section 166 allows a deduction for any              
          debt that becomes worthless during the taxable year.  Sec.                  
          166(a)(1).  To establish entitlement to a bad debt deduction, a             
          taxpayer must prove that a bona fide debt existed, and that the             
          debt became worthless in the year that the deduction is claimed.            
          Rule 142(a); American Offshore, Inc. v. Commissioner, 97 T.C.               
          579, 593 (1991); sec. 1.166-1(c), Income Tax Regs.  Respondent              
          does not question whether a bona fide debtor-creditor                       
          relationship existed between petitioner and Ms. Laumbattus;                 
          rather, respondent argues that petitioner has failed to establish           
          the worthlessness of the debt during the year in question.5                 
               The question of whether a debt has become worthless is one             
          of fact, to be determined by an examination of all surrounding              
          facts and circumstances.  American Offshore, Inc. v.                        
          Commissioner, supra at 594.  Generally, a taxpayer may establish            


          4  Petitioner contends that he included the loan repayments                 
          as income on Schedules C during the appropriate years; however,             
          the Schedules C do not specify the nature of the gross receipts             
          for the years 1992 through 1995.  On the basis of our                       
          conclusions, infra, we need not, and do not, decide whether                 
          petitioner reported said loan repayments in subsequent years.               
          5  Respondent also argues that the debt was not a business                  
          bad debt, and that the amount of the debt has not been                      
          established.  Based on our conclusions, infra, we need not, and             
          do not, decide these questions.                                             




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  Next

Last modified: May 25, 2011