Estate of Emanuel Trompeter, Deceased, Robin Carol Trompeter Gonzalez and Janet Ilene Trompeter Polachek - Page 49

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               Respondent argues that these transactions were not bona fide           
          loans, but unreported taxable gifts.  The estate does not address           
          the "loans" to Mr. Skauronski and Mr. Pasko.  The estate contends           
          that the payments to Ms. Wong were loans, or, in the alternative,           
          consideration for services rendered.                                        
               We agree with respondent.  An individual may claim a                   
          short-term capital loss for a nonbusiness bad debt that becomes             
          worthless during the taxable year.  Sec. 166(d).  In order to do            
          so, however, the debt must be bona fide.  A bona fide debt arises           
          "from a debtor-creditor relationship based upon a valid and                 
          enforceable obligation to pay a fixed or determinable sum of                
          money".  Sec. 1.166-1(c), Income Tax Regs.  A bona fide debt does           
          not include an advance to a friend solely for reasons other than            
          to make a profit.                                                           
               Case law establishes a two-part test for determining whether           
          a transfer of money qualifies as debt.  First, repayment of the             
          purported debt cannot be contingent upon a future event.  Second,           
          the transfer must be made with a reasonable expectation, belief,            
          and intention that it will be repaid.  See Zimmerman v. United              
          States, 318 F.2d 611 (9th Cir. 1963).  Whether a transfer is made           
          with the requisite expectation, belief, and intent is factual,              
          John Kelley Co. v. Commissioner, 326 U.S. 521 (1946), and the               
          following nonexclusive factors, none of which is controlling by             
          itself, are relevant to this determination:  (1) Whether a note             





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