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bankruptcy, we have the requisite jurisdiction to redetermine the
merits of that deficiency.
Section 166(a) generally allows a deduction for any bona
fide debt that becomes worthless during the taxable year. Bad
debts may be characterized as either business bad debts or
nonbusiness bad debts. Sec. 166(d). Worthless debts arising
from unpaid fees shall not be allowed as a deduction under
section 166 unless the income such item represents has been
included in the return of income for the year for which the
deduction as a bad debt is claimed or for a prior taxable year.
Gertz v. Commissioner, 64 T.C. 598, 600 (1975); O'Meara v.
Commissioner, 8 T.C. 622, 633 (1947); sec. 1.166-1(e), Income Tax
Regs.
The parties stipulated that the amount at issue with respect
to the bad debt deduction is $2,626. This was the rounded off
amount of the bad debt claimed on petitioner's Schedule C for
Paradise. At trial, petitioner stated that he believed "the
correct figure should be the amount of the services provided,
which is, in fact, $5,000." We hold the parties to their
stipulation, and use the stipulated amount of $2,626 with respect
to this issue. This amount purportedly represents a fee for
services petitioner rendered to a client. Petitioner contends
that he included the $2,626 in income in a prior year but he was
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