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worthlessness of loans allegedly made by petitioner to CME/CMA in
the amount of $633,897. As a result of their deduction of that
loss, petitioners reported on their 1989 amended return a net
operating loss which subsequently was carried forward to
petitioners' 1990 return. Respondent argues that petitioner's
advances were not bona fide debt but, rather, contributions to
capital. Consequently, in the notice of deficiency, respondent
disallowed the portion of the loss carryforward on petitioners'
1990 tax return attributable to the bad debt deduction in the
amount of $633,897 claimed by petitioners on their 1989 amended
return and recharacterized such amount as $64,085 in short-term
capital loss and $460,526 in long-term capital loss.
The second bad debt deduction, claimed by petitioners on
their 1990 return, was for the worthlessness of loans allegedly
made by petitioner to CME/CMA in the amount of $4,010.
Respondent argues that petitioner's advances were not bona fide
debt but, rather, contributions to capital. Consequently, in the
notice of deficiency, respondent disallowed the deduction and
increased petitioners' taxable income; respondent, however, did
not recharacterize the amount as a capital loss. As an
alternative argument, respondent argues that the advances, if
they are considered bona fide debt, are nonbusiness bad debts
deductible only to the extent permitted pursuant to section
166(d).
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Last modified: May 25, 2011