- 568 -
purpose of the "sales" to MAF was to establish "worthlessness".
Kanter's testimony was corroborated by Morrison, who stated that
MAF bought the notes from IRA as an "accommodation" to Kanter.
Morrison further testified that, at the time MAF "purchased" the
notes, Morrison did not know the financial condition of the
alleged makers of the notes and that it did not matter to him
whether or not the notes were collectible. Like the previously
discussed 1985 "sales" of notes receivable by IRA to Kanter and
Holding Co., the testimony of Kanter and Morrison, and the lack
of economic substance to the "sales" show that the sole purpose
of the "sales" was to establish a basis for IRA to claim losses
for Federal income tax purposes.
Although IRA did not deduct the alleged notes receivable as
bad debts, Kanter testified that he believed that the notes were
worthless. However, IRA did not establish that any of the
claimed notes became worthless in 1987, and, therefore, IRA is
not entitled to a bad debt deduction for 1987 for such notes.
With respect to the notes acquired from IFI, in order to
prove entitlement to a bad debt deduction in the amounts claimed,
IRA must show that the notes had their face values at the time
acquired by IRA on December 22, 1987, and that an event occurred
to cause them to become worthless by December 31, 1987. See
Dustin v. Commissioner, 53 T.C. 491, 501 (1969), affd. 467 F.2d
47 (9th Cir. 1972). IRA failed to do so.
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