Dennis W. Stark - Page 13



                                       - 13 -                                         
          petitioner has failed to demonstrate the amount of the debt.  A             
          debt for purposes of section 166 must be an enforceable                     
          obligation to pay a "fixed or determinable sum of money”.  Sec.             
          1.166-1(c), Income Tax Regs.  In Iowa S. Utils. Co., the debt had           
          been adjudicated, and the State court judgment served to make the           
          debt "a fixed or determinable sum" in the Court of Claims' view.            
          Iowa S. Utils. Co. v. United States, supra at 495.  Here, the               
          only evidence of the amounts William diverted, which he disputes,           
          is the testimony of petitioner and his accountant that the ratio            
          of cash to total sales for the then-current 18-month period was             
          computed, and then an estimate of the cash sales for the years              
          1984 through 1990 was made by applying the current-period ratio             
          to actual sales in those past years.  There is no evidence in the           
          record of the reasonableness of this estimate, the                          
          appropriateness of applying the current ratio to past years, or             
          of any corporate records to support the accuracy of this                    
          estimate.  On this record, petitioner has failed to show that the           
          debt he alleges was of a "fixed or determinable" amount.                    
               Second, petitioner has not shown that the debt became                  
          worthless in 1992.  Section 166 allows a deduction for debts                
          which become worthless "within the taxable year."  To meet this             
          requirement, the taxpayer must prove that the debt had value at             
          the commencement of the year for which deduction is sought and              
          that it became worthless during that year.  Estate of Mann v.               
          United States, 731 F.2d 267, 275 (5th Cir. 1984); James A. Messer           
          Co. v. Commissioner, 57 T.C. 848, 861 (1972); Shipley v.                    



Page:  Previous  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  Next

Last modified: May 25, 2011