Edwin A. Helwig - Page 16

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          relied on by respondent involved a situation where the taxpayer              
          claimed partial worthlessness where the debtor’s liabilities were            
          seven times its assets.  The Court, in denying the taxpayer’s                
          claim, found:  That although the liabilities exceeded assets by a            
          ratio of 7 to 1, the assets had considerable value; in the year              
          of the taxpayer’s claim and the following year the debtor made               
          repayments, and the repayments continued until the debt was                  
          reduced to an amount smaller than claimed loss.  See Miller                  
          Realty Co. v. Commissioner, T.C. Memo. 1977-440.                             
               In petitioner’s circumstances, Snacks’ negative net worth               
          was steadily increasing.  The increases during the 1991, 1992,               
          and 1993 periods, however, were to some great extent attributable            
          to advances from K&H.  More importantly, petitioner has not shown            
          any identifiable events that “clearly mark the futility of any               
          hope of further recovery.”  The accountant’s purchase of the                 
          notes for a nominal amount was a transaction for convenience and             
          as a courtesy to petitioner, and did not evidence the                        
          worthlessness of the notes.  We also agree with respondent’s                 
          observation that K&H’s continued extension of credit is not                  
          consistent with the claim of worthlessness.  Although the                    
          advances are business debt within the meaning of section 166, no             
          portion of them became worthless during petitioner’s 1991, 1992,             
          or 1993, taxable year.  We also note that even if the sale of the            

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