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Forest Activities, Ltd. (Forest), was a limited partnership,
previously known as Sherwood Associates. Alpha Financial Corp.
(AFC) was the sole general partner of Forest. Gallenberger was
the secretary of AFC. The record does not show what
consideration or transaction gave rise to the indebtedness owing
by Forest to IRA.
Forest owned rental property. According to the 1988
partnership return of Forest, its rental property was sold in a
foreclosure on March 31, 1988. According to the January 1, 1988,
balance sheet on Forest's 1988 return, Forest had assets with a
book value of $2,652,193 including $76,106 cash and liabilities
of $4,211,337 on that date.
After the foreclosure, as of December 31, 1988, Forest owned
cash of $17,121 and had no liabilities. In 1989, Forest earned
$20,055 income and, as of December 31, 1989, had cash of $37,176
and no liabilities. No evidence was presented as to the
financial worth of AFC, the general partner.
IRA failed to establish that the note receivable from Forest
in the amount of $6,000 existed in fact and failed to establish
that the note receivable became worthless during 1987.
OPINION
Section 166(a) allows a deduction for any debt that becomes
wholly worthless within the taxable year.
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