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should be claimed. Snacks had a negative net worth for its 1991
and 1992 years of $2,107,158 and $2,571,348, respectively.
Snacks’ negative net worth was steadily increasing throughout the
period under consideration. The remaining $650,000 in
outstanding notes was sold to the accountant, in a transaction
for convenience, for $1,000 during the 1993 year. Also in 1993,
petitioner sold his stock holdings in Snacks for $5,000 to the
accountant and claimed a $100,000 capital loss deduction. At
that time, petitioner owned about 80 percent of Snacks.
Respondent’s focus with respect to the worthlessness
question concerns the fact that K&H continued to make advances
during the 1991 and 1992 period for which bad debt loss
deductions were claimed. Relying on two memorandum opinions of
this Court, respondent argues that continued extension of credit
is not consistent with the claim of worthlessness. One of those
opinions involved a taxpayer who was reselling a substantial
percentage of its purchases to an insolvent customer. In that
case, the holding that the taxpayer was not entitled to claim
partial worthlessness was based on the fact that the customer was
deeply insolvent and that its situation did “worsen markedly,”
and the taxpayer continued to sell a significant amount of
merchandise (extend credit) to the customer. See Veego Foods,
Inc. v. Commissioner, T.C. Memo. 1958-203. The other opinion
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