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On petitioner's 1988, 1989, 1990, and 1991 Federal income
tax returns, the $1.6 million claimed nonbusiness bad debt
deduction (and the carryovers thereof) relating to petitioner’s
purported loans to EPL significantly offset the capital gains
reported from the sale of petitioner’s stock in Coborn.
Discussion
Losses on nonbusiness bad debts are treated as sustained in
a particular year only if the entire debt becomes totally
worthless during the year. Riss v. Commissioner, 478 F.2d 1160,
1165-1166 (8th Cir. 1973), affg. in part and remanding 56 T.C.
388 (1971); sec. 1.166-5(a)(2), Income Tax Regs. The taxpayer
must show some identifiable event or group of facts that proves
worthlessness. American Offshore, Inc. v. Commissioner, 97 T.C.
579, 593-594 (1991). A debt does not become worthless merely
because a creditor decides not to enforce the debt. Southwestern
Life Ins. Co. v. United States, 560 F.2d 627, 644 (5th Cir.
1977). Declining business, lack of profits, or poor financial
condition do not necessarily establish worthlessness of a debt.
Intergraph Corp. v. Commissioner, 106 T.C. 312, 323 (1996), affd.
per curiam without published opinion 121 F.3d 723 (11th Cir.
1997). This is particularly true where a debtor continues to
operate as a going concern and where the creditor continues to
extend funds to the debtor. Id. and cases cited therein.
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