Kaps Warehouse, Inc. - Page 22

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           unincorporated stores to which the rebates were given had weak                             
           financial conditions; rather, the financial condition of Kapsco is                         
           the financial condition that is pivotal.  In fiscal year 1991,                             
           before the rebates were given, Kapsco had retained earnings of                             
           $154,868, total shareholders' equity of $299,322, and a $107,987                           
           loss.  However, evidence of operating losses, without more, does                           
           not establish worthlessness of a debt.  See Trinco Indus., Inc. v.                         
           Commissioner, 22 T.C. 959, 965 (1954).  The mere fact that losses                          
           exist or that an obligation will be difficult to collect does not                          
           determine worthlessness.  Riss v. Commissioner, 56 T.C. 388, 407                           
           (1971), affd. 478 F.2d 731 (8th Cir. 1973).                                                
                  We are satisfied that Kapsco had sufficient liquidity at the                        
           end of fiscal year 1991 to cover the written off accounts                                  
           receivable (Kapsco had a $341,925 cushion of its current assets                            
           over its current liabilities to pay its accounts payable, even                             
           before the rebates at issue).  Accordingly, petitioner has failed                          
           to prove that Kapsco's accounts payable were uncollectible.                                
                        3.  NPC                                                                       
                  There is no evidence that NPC's accounts payable to petitioner                      
           were partially worthless.  Petitioner gave rebates of $56,548 and                          
           $115,000 in fiscal years 1991 and 1992, respectively, to NPC.                              
           NPC's financial condition was certainly the weakest of the three                           
           entities to which the rebates were given.  However, even here,                             

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