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(At the time NPC's original returns were filed for fiscal
years 1991 and 1992, it was reported that KAW owned 75 percent of
NPC. Under these circumstances, KAW could not have filed a
consolidated return with NPC, enabling some of NPC's losses to be
used against KAW's income. Secs. 1501, 1504. Thus, NPC's losses
could not have been used to reduce any other taxable liability of
the group. Subsequently, during preparation for trial, petitioner
discovered the error in the original filing of the NPC returns; KAW
in fact owned 100 percent of NPC.)
D. The Rebated Amounts Were Not Bad Debts
Petitioner contends that the rebates were not an attempt to
avoid income taxation; but rather, because the rebates were given
on the basis of the lack of collectibility of the accounts
receivable from the related entities, the rebated amounts should be
treated as bad debts.
Section 166(a) provides a deduction for any debt that becomes
worthless during the taxable year. The amount of the deduction for
a bad debt is limited to the taxpayer's adjusted basis in the debt
as provided in section 1011. Sec. 166(b); Perry v. Commissioner,
92 T.C. 470, 477-478 (1989), affd. without published opinion 912
F.2d 1466 (5th Cir. 1990). Whether, and when, a debt becomes
worthless is determined by inspecting the facts and circumstances.
Sec. 1.166-2(a), Income Tax Regs. Assuming a debt is recoverable
only in part, the amount of such a debt charged off within the
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