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a debtor-creditor relationship with respect to the $6,106 of
advances made during petitioner's tax year ended July 31, 1992.
See Fisher v. Commissioner, 54 T.C. at 910-911. Accordingly,
such advances were not bona fide debt.
II. Did The Advances Become Worthless During
Petitioner's Tax Year Ended July 31, 1992?
A bad debt deduction for a wholly worthless debt is
allowable only for the taxable year in which the debt becomes
worthless. See sec. 166(a)(1). There is no standard test for
determining worthlessness; whether and when a debt becomes
worthless depends on all the facts and circumstances. It is
generally accepted, however, that the year of worthlessness is to
be fixed by identifiable events constituting reasonable grounds
for abandoning any hope of recovery. See Crown v. Commissioner,
77 T.C. 582, 598 (1981).
It is often very difficult to determine the precise moment a
debt becomes worthless. This is particularly true when a
debtor's financial situation deteriorates over time. However, it
is clear that in making the determination the creditor must be
neither an "incorrigible optimist" nor a "stygian pessimist".
See Minneapolis, St. Paul R.R. v. United States, 164 Ct. Cl. 226,
241 (1964); Barrett v. Commissioner, T.C. Memo. 1996-199, affd.
per curiam without published opinion 107 F.3d 1 (1st Cir. 1997).
The creditor's decision must be made in the exercise of sound
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