- 14 -
owned by petitioner or the couple's net worth. She was aware of
the financial difficulties in petitioner's business affairs, in
particular the drop in value of the ENSCO stock, because the
business problems decreased petitioners' standard of living and
impacted petitioners' household budget, which Ms. Carvin managed.
As part of the property settlement in petitioners' divorce, Ms.
Carvin received BEI, whose only remaining subsidiary was Kaufman
Lumber. Mr. Bell received TELCOR and its four subsidiaries.
OPINION
Petitioners seek to deduct advances to corporations from
their reported ordinary income, claiming that the advances are
partially worthless bad debts. Section 166 entitles a taxpayer
to a deduction for a bad debt that becomes worthless during the
taxable year. A business bad debt can be deducted from ordinary
income if it is either partially or totally worthless. Sec.
166(a). A nonbusiness bad debt is deductible only as a short-
term capital loss and only if the debt becomes totally worthless
during the taxable year. Sec. 166(d)(1)(B). Only a bona fide
debt is deductible. Sec. 1.166-1(c), Income Tax Regs.
Petitioner bears the burden of proving that a bona fide business
debt exists and that the debt became worthless during the taxable
year in issue. Rule 142(a); Crown v. Commissioner, 77 T.C. 582,
598 (1981); Rude v. Commissioner, 48 T.C. 165, 172 (1967).
Petitioner contends that the advances to BEI and TELCOR
constitute a bona fide business debt and that the debt became
partially worthless in 1988. Respondent argues that the advances
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011