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That potential was corroborated by unrelated third parties. We
find that K&H’s dominant motive for advancing or lending Snacks
funds was for the purpose of developing business opportunities
and that the debt was thus proximately related to its trade or
business. Accordingly, we hold that the advances in question
were business bad debts within the meaning of section 166.
The final step in this three part inquiry is to decide
whether petitioner has shown that any portion of the business bad
debts became worthless during the years claimed by petitioner.
This inquiry is also one of facts and circumstances, and
worthlessness occurs “in the year in which identifiable events
clearly mark the futility of any hope of further recovery”.
James A. Messer Co. v. Commissioner, 57 T.C. 848, 861 (1972).
Portions of the business bad debt were written off as
partially worthless for the 1991 and 1992 fiscal years. The
amounts of partial worthlessness were computed by means of a
ratio generated by comparing the total losses of Snacks to the
outstanding balance of the advances (both of which were
increasing annually). Because the vending machines’ capability
depended on its computer hardware and software, the accountant
considered the known propensity of these items to become
technologically outmoded in choosing the method to compute
worthlessness and in reaching the conclusion that loss deductions
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