- 24 - collection efforts may serve as evidence of worthlessness. However, such action is not required. See Smyth v. Barneson, 181 F.2d 143 (9th Cir. 1950); Bowman v. Commissioner, T.C. Memo. 1995-259. Where the surrounding circumstances indicate that a debt is worthless and uncollectible and that legal action to enforce payment would in all probability not result in the satisfaction of execution on a judgment, a showing of these facts will be sufficient evidence of worthlessness. See sec. 1.166- 2(b), Income Tax Regs. We find that the surrounding circumstances so indicated in this case, during petitioner's tax year ended July 31, 1992. Among the other factors discussed above, we note that as of July 21, 1992, Mark Mann was insolvent in both balance sheet and bankruptcy terms. His total liabilities (including the advances) were approximately $142,259; his assets were approximately $7,200, and consisted of his travel trailer/residence and his used truck. Also, as a result of his unemployment, Mark had become unable to meet his obligations as they came due. For these reasons, it is clear that if petitioner had sought to collect the advances, Mark Mann would have been forced to declare bankruptcy, and petitioner would most likely have received nothing. Where a creditor is familiar with the debtor's circumstances and knows that the debtor is hopelessly insolvent, he need not attempt to collect the debt where his attempts to doPage: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Next
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