Robert R. Plante and Mary B. Plante - Page 16

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          agreement between petitioner and the Hansens.  The fact is that             
          petitioner canceled, or otherwise considered satisfied, any debt            
          owed to him by the corporation as part of his agreement with the            
          Hansens.  It was characterized as contribution of capital in the            
          agreement, and there is no basis in fact for considering it                 
          otherwise for Federal income tax purposes.                                  
               Furthermore, a shareholder's cancellation or forgiveness of            
          any debt owed to the shareholder from the shareholder's closely             
          held corporation is generally considered a contribution to the              
          corporation's capital, which is what occurred in this matter.               
          Lidgerwood Manufacturing Co. v. Commissioner, 229 F.2d 241 (2d              
          Cir. 1956), affg. 22 T.C. 1152 (1954); Bratton v. Commissioner,             
          217 F.2d 486 (6th Cir. 1954); Frantz v. Commissioner, 83 T.C. 162           
          (1984), affd. 784 F.2d 119 (2d Cir. 1986); sec. 1.61-12(a),                 
          Income Tax Regs.  But cf. Giblin v. Commissioner, 227 F.2d 692              
          (5th Cir. 1955), revg. T.C. Memo. 1954-186.  A creditor's                   
          voluntary forgiveness of a debt ordinarily does not provide                 
          sufficient grounds for claiming a bad debt deduction.  See W.D.             
          Haden Co. v. Commissioner, 165 F.2d 588 (5th Cir. 1948); Thompson           
          v. Commissioner, 6 T.C. 285 (1946), affd. 161 F.2d 185 (5th Cir.            
          1947).  Accordingly, petitioners are not entitled to a bad debt             
          deduction for 1991 to the extent of the amount of debt evidenced            
          by the notes, or, as previously indicated, for the unexplained              
          balance of the $475,000.                                                    

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