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(1933). Therefore, to prevail, petitioner must prove that its
advances to Mark Mann: (1) Were bona fide debt, and (2) became
worthless during the tax year for which they were deducted (the
year ended July 31, 1992). Respondent asserts that petitioner
fails on both counts.
I. Were The Advances Legally Valid and Enforceable
Bona Fide Debt?
Bona fide debt is debt that arises from a debtor-creditor
relationship, based upon a legally valid and enforceable
obligation to pay a fixed or determinable sum of money. See sec.
1.166-1(c), Income Tax Regs. To prove that the advances were
bona fide debt, petitioner must therefore show that the advances:
(1) Were not "contingent" (i.e., were a legally valid and
enforceable obligation), and (2) arose from a debtor-creditor
relationship between petitioner and Mark Mann. See Andrew v.
Commissioner, 54 T.C. 239, 244-245 (1970); Clark v. Commissioner,
18 T.C. 780, 783-784 (1952), affd. per curiam 205 F.2d 353 (2d
Cir. 1953). Respondent asserts petitioner has met neither of
these requirements.
A. Were The Advances Legally Valid and
Enforceable Obligations?
The July 31, 1991, note provided in part that "Payment [was]
to be made from project management salaries and bonuses in
amounts commensurate with earnings." We have found that similar
notes existed in prior years. The parties have stipulated that
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