- 49 -
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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