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persuaded suppliers to sell to them at wholesale prices during
and after 1991; that they later obtained a retail merchant
certificate for Red Caboose; and that they attempted to persuade
credit card companies, Visa and MasterCard, to allow Red Caboose
to accept their credit cards for its model railroad orders during
the years in issue. However, in weighing these facts along with
all the other facts in this record, we have concluded, on
balance, that petitioners' objective in operating Red Caboose was
not the actual and honest intention of making a profit during the
years in issue. Accordingly, we sustain respondent's
determination. Having decided that petitioners are not entitled
to the loss deductions resulting from their model railroad
activity in 1990, 1991, and 1992, it is unnecessary to address
respondent's alternative position that petitioners are not
entitled to additional depreciation deductions claimed for 1991
and 1992.
II. Claimed Nonbusiness Bad Debt Deduction
Section 166(d) allows a deduction for a nonbusiness debt
that becomes worthless within the taxable year, but provides that
the loss shall be treated as a short-term capital loss to a
taxpayer other than a corporation. To qualify for a deduction
for a worthless debt, the taxpayer must show that the debt became
totally worthless within the taxable year in which the deduction
is claimed because no deduction is "allowed for a nonbusiness
debt which is recoverable in part during the taxable year." Sec.
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