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transaction entered into for profit’ surely means something more
than the mere casual preliminary investigation of a prospective
business or investment.” Although petitioner expended capital,
he has failed to demonstrate what steps, if any, were taken
beyond a preliminary investigation. Petitioner’s testimony on
this subject was vague and, to some extent, incomprehensible.
Accordingly, petitioners are not entitled to a deduction under
section 165(c)(2). See Brown v. Commissioner, 40 T.C. 861, 869-
870 (1963); see also Frank v. Commissioner, supra.
III. Bad Debt Losses
FINDINGS OF FACT
In the early 1980’s, petitioner formed a partnership with
Albert J. Schara (Mr. Schara) for the purpose of buying and
selling real estate. Over the course of their partnership,
petitioner made several loans to Mr. Schara or to partnerships
controlled by him. When the partnership dissolved in 1988, Mr.
Schara had loans outstanding to petitioner totaling $147,000.
These loans were represented by three separate notes. One note
was given in exchange for two checks (a $50,000 check dated March
23, 1984, and a $5,000 check dated November 2, 1984) made payable
to Schara Development Co., although Mr. Schara was personally
liable for the entire debt. Another note was in the principal
amount of $136,024 and dated February 4, 1983. This note
represented several separate payments from petitioner to T. A.
Investments, a partnership that was controlled by Mr. Schara.
Two payments totaling $56,000 were made on this note, reducing
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