- 3 - 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.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011