- 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.
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