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club cleaning machine. At no time did petitioner wife have any
business interest in the debt.
A loss from a nonbusiness debt shall be treated as sustained
only if and when the debt becomes totally worthless, and no
deduction shall be allowed for a nonbusiness debt which is
recoverable in part during the taxable year. Sec. 1.166-5(a)(2),
Income Tax Regs. Whether and when a debt becomes worthless is a
question of fact, in which all relevant evidence is considered,
including the full value of the collateral, if any, securing the
debt and the financial condition of the debtor. Sec. 1.166-2(a),
Income Tax Regs.
The taxpayer must show that she intended to enforce
collection of the debt, but some event occurred during the
taxable year in which the deduction is sought that rendered the
debt uncollectible. Davis v. Commissioner, 88 T.C. 122, 142-144
(1987), affd. 866 F.2d 852 (6th Cir. 1989). Although the
taxpayer need not resort to legal action, she must show that the
debt became worthless in the year the debt is claimed. Sec.
1.166-2(b), Income Tax Regs.
Respondent argues that the July 1, 1989, promissory note did
not create a bona fide debt since there is no evidence that
anything of value was received by petitioner husband in
consideration of his promise to pay. In the alternative,
respondent contends that if there was a bona fide debt,
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