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establish that their advances were bona fide debts as opposed to
gifts; and (2) assuming the Court finds the existence of bona
fide debt, the debt did not become worthless during 1993.
Petitioners, on the other hand, contend that the debt became
worthless during 1993, thereby entitling them to a deduction.
Upon review of the record, we hold that petitioners are
entitled to a nonbusiness bad debt deduction for 1993. The
record demonstrates that there was a bona fide debtor-creditor
relationship between petitioners and the Dubatos. While
petitioners’ nine payments to, or on behalf of, the Dubatos were
not supported by notes or other physical evidence of
indebtedness, we are convinced that petitioners intended them to
be loans for which they reasonably expected repayment.
Petitioners advanced the $10,901.36 only after they were timely
and fully repaid by the Dubatos on their four previous loans.
Moreover, the Dubatos had an operating business from which
petitioners could reasonably expect repayment. Lastly,
petitioners expected to receive interest and made numerous
demands for payments once the Dubatos failed to timely repay the
loans. These facts suggest that a bona fide debtor-creditor
relationship existed. Respondent’s contention that the advances
were gifts to Dubatos is simply not supported by the record.
We also find that the debt became worthless in 1993.
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