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Estes' debt, petitioner, Estes, and the architect went to Beijing
to investigate the hotel project and the market for the Theratech
device.
Unfortunately, shortly after the party returned to the
United States, and before any contracts were signed, the
architect died. No further attempts were made to market the
device in China, and the Theratech stock soon became worthless.
In 1993, petitioner demanded payment on the notes. Estes,
however, was in the middle of a divorce, was without funds and
living in the home of a relative, and was considering filing for
bankruptcy. Estes transferred the title of his only asset, a
power boat, to petitioner. Upon the advice of his attorney,
petitioner decided that it would be futile to make further
attempts to collect on the notes.
Petitioners claimed a deduction on their 1993 return for a
$266,323 nonbusiness bad debt loss, and a capital loss carryover
on their 1994 return. Respondent determined that petitioners
were not entitled to the deductions.
OPINION
In the notices of deficiency, respondent disallowed the
losses on the grounds that petitioners failed to establish the
amount of the debt and that it became uncollectible during the
1993 taxable year. On brief, respondent argues that petitioner
did not prove that a true debtor-creditor relationship was
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