Myer B. Barr and Estate of Diana L. Barr - Page 3

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               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, however, is treated as a short-term capital loss.  Sec.               
          166(d).  Petitioners bear the burden of proving that a bona fide            
          debt exists and that the debt became worthless during the taxable           
          year in issue.  Rule 142(a).                                                
               Petitioner has two sons, Jeffrey Barr (Jeffrey) and Stephen            
          Barr (Stephen).  Petitioner has a close relationship with                   
          Jeffrey; however, he is estranged from Stephen for personal                 
          reasons and maintains no contact with him.                                  
               Super City Meats, of which Stephen was president and 50                
          percent co-owner, sold products to various Chinese restaurants.             
          On September 13, 1990, Jeffrey advanced Stephen $100,000.  The              
          purpose of this advance was to provide working capital for Super            
          City Meats.  The advance was to be used to interview and hire a             
          new manager, pay off debts to a former supplier, and make                   
          purchases from new suppliers.                                               
               A promissory note (the note) in the amount of $100,000 was             
          executed by Stephen personally and as president of Super City               
          Meats to Jeffrey several days after the advance, but it was dated           
          September 13, 1990.  Jeffrey required Stephen to sign the note              
          personally as an added assurance of repayment.  The note bore               
          interest at 13 percent per annum.                                           

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