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the basis of the record before us, we have no choice but to deny
their claim to the deduction, at least to the extent of $155,000,
and turn our attention to the portion of the deduction
represented by the notes.
Narrowing our focus on the treatment of the notes in
connection with disposition of petitioner's BCBI stock leads us
to conclude that the balance of petitioners' claim for a bad debt
deduction (the amount represented by the notes) must also be
rejected.
Assuming, without finding, that the advances evidenced by
the notes represent bona fide loans from petitioner to BCBI, it
is clear that the underlying "debt" was satisfied, "paid",
canceled, or forgiven in connection with petitioner's sale of his
stock to the Hansens. The agreement clearly makes the
disposition of the notes part of the sale transaction and
characterizes their disposition as a contribution to BCBI's
capital. Petitioners have presented us with nothing that
suggests otherwise. Petitioners' argument that the amount
evidenced by the notes should now result in a section 166 bad
debt deduction is inconsistent with the nature of the underlying
transaction. Respondent's arguments regarding the application of
Commissioner v. Danielson, 378 F.2d 771 (3d Cir. 1967), revg. 44
T.C. 549 (1965), notwithstanding, petitioners have presented no
evidence that attempts to recharacterize the nature of the
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