- 10 -
debtor, were involved in litigation over the dissolution of their
partnership and the allocation of partnership debts and assets.
The litigation commenced in the year that petitioners claimed the
debts became worthless (1989) and continued for several years
thereafter. The debts at issue in the litigation arose out of
and were related to the partnership between petitioner and Mr.
Schara. The amount of the unpaid notes was claimed by
petitioners to be business bad debts. The uncertainty as to the
outcome of that litigation is fatal to petitioners’ claim that
the debts became worthless in 1989.2 See Barbour v.
Commissioner, 29 T.C. 1039 (1958); see also Birnbaum & Manaker,
P.C. v. Commissioner, T.C. Memo. 1993-485. Accordingly,
petitioners are not entitled to the $147,000 bad debt deduction
for 1989.
IV. 1988 Capital Gains
FINDINGS OF FACT
Petitioners’ 1988 Federal income tax return reflected a
$36,000 profit from the sale of one of the buildings that was
owned by the Schara-Hagman partnership. At trial, petitioners
argued that they did not make a profit from the sale of the
building.
2 In addition, petitioners have not indicated whether the
litigation between themselves and Mr. Schara had ceased by Sept.
30, 1993, when petitioners filed their 1989 return.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
Last modified: May 25, 2011