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the outstanding balance to $80,024. A third note was in the
principal amount of $12,000 and dated April 4, 1983. This note
represented several separate payments from petitioner to Nova
Image, Inc. Al Schara was the president of Nova Image, Inc.
The partnership between petitioner and Mr. Schara did not
end amicably. In December 1988, Mr. Schara filed a complaint
against petitioners in the Superior Court of California for
dissolution, partnership accounting, damages for repudiation of
partnership, conversion of partnership assets, and breach of
fiduciary duty. In March 1989, petitioners filed a complaint
against Mr. Schara in the Superior Court of California for breach
of fiduciary duty and breach of contract. The two lawsuits
lasted for several years and were ultimately abandoned by both
parties. Petitioners claimed a $147,000 business bad debt loss
on their 1989 return. The loss was disallowed by respondent.
OPINION
Next we consider whether petitioners are entitled to
$147,000 in business bad debts that were claimed on their 1989
return. Respondent contends that petitioners have failed to
prove (1) that these debts became worthless in 1989, and (2) that
the items in question are business bad debts. Petitioners failed
to show worthlessness, and accordingly we need not address
whether the items in question were business bad debts.
Section 166(a) allows taxpayers to deduct the value of bona
fide debts that become worthless during the year. Millsap v.
Commissioner, 46 T.C. at 762. Petitioners and Mr. Schara, the
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