- 556 -
IRA failed to establish that the Commissioner's failure to allow
deductions for the partial worthlessness of the debts described
was arbitrary or unreasonable. Accordingly, we hold that IRA is
not entitled to any bad debt deduction on the notes receivable
discussed.
Issue 26. Whether IRA Is Entitled to Claimed Bad Debt Deductions
for 1987
FINDINGS OF FACT
On its Federal income tax return for 1987, IRA claimed bad
debt deductions based on the worthlessness of the following notes
receivable:
Debtor Deduction
Claude Ballard $84,889
Robert Lisle 12,185
H. Abernathy 28,939
Forest Activities 6,000
Total 132,013
In the notice of deficiency, respondent disallowed IRA's
claimed bad debt deductions on the ground that it was not
established that any bad debts existed in fact and in law or, if
existing, were not adequately substantiated as to amount.
The transactions with Ballard and Lisle that gave rise to
the notes in question that were reflected on the books and
records of IRA were not loans but were amounts earned by Ballard
and Lisle for their respective roles in the Prudential income
scheme.
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