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taxable year is allowable as a deduction. A debt will generally be
considered worthless only when it can be reasonably expected that
the debt is without possibility of future payment and legal action
to enforce the debt would not result in satisfaction. Hawkins v.
Commissioner, 20 T.C. 1069 (1953). The taxpayer bears the burden
of proving that the debt had value at the beginning of the taxable
year and that it became worthless during and prior to the end of
that year. Millsap v. Commissioner, 46 T.C. 751, 762 (1966), affd.
387 F.2d 420 (8th Cir. 1968). In other words, the taxpayer must
demonstrate what part of the debt is worthless. Sec. 1.166-
3(a)(2)(iii), Income Tax Regs. In the case of a partial writeoff
of a bad debt, the question is whether the Commissioner's
discretion was abused. Brimberry v. Commissioner, 588 F.2d 975,
977 (5th Cir. 1979), affg. T.C. Memo. 1976-209.
Here, petitioner is claiming a partial worthlessness of the
debts at issue; that is, the accounts payable to petitioner were
worthless to the extent of the rebates. As discussed hereafter,
petitioner failed to prove that any portion of the accounts payable
to petitioner from its related entities was worthless and thus
uncollectible.
1. KAW
There is no evidence that KAW's accounts payable to petitioner
were partially worthless. Petitioner gave a $40,000 rebate to KAW
in fiscal year 1992. In that year, KAW: (1) Had retained earnings
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