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claimed on their return.7 Petitioners contend that various debts
of the partnerships arose when loans were made by petitioners to
ISI which, in turn, made loans to each of the various
partnerships in which both ISI and Mr. Bach held interests.
Further, petitioners contend that the loans receivable from the
partnerships recorded on ISI's books would be reduced at the end
of the year and a corresponding increase in salary or officer's
compensation expense would be made on the books which represented
payment to Mr. Bach by the same amount. Petitioners also contend
that each of the alleged payments made to them was recorded as
income on their income tax return for each year. Petitioners
ultimately contend that through this process, they were in
essence making the loans to the various partnerships and that
these loans were never paid back nor credited to petitioners'
capital accounts.
Mr. Bach testified that no written loan agreements ever
existed between ISI and any partnership or between petitioners
and any of the partnerships. On brief, petitioners attached
documents which purport to summarize loans totaling $1,042,809.42
7Sec. 166(a) provides that there shall be allowed as a
deduction any debt which becomes worthless during the taxable
year. Petitioners bear the burden to establish: (1) The
existence of a bona fide debt; (2) the amount of the debt; (3)
that the debt was incurred in or was created or acquired in
connection with Mr. Bach's trade or business; and (4) that the
debt became worthless at least in part during the taxable year.
Sec. 166(a), (d)(2); Rule 142(a); secs. 1.166-1(a), (c), 1.166-
5(b), Income Tax Regs.
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