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During the years in issue, petitioner operated a heating and
plumbing service. On their 1994 and 1995 Federal income tax
returns, petitioners claimed business bad debt deductions in the
amounts of $1,342 and $2,850, respectively. In the notice of
deficiency, respondent determined that petitioners are not
entitled to the bad debt deductions because the revenue
corresponding to such claimed deductions never was included in
petitioners' income.
Petitioners received interest income from First Union
National Bank of Florida in 1994 in the amount of $794. In the
notice of deficiency, respondent determined that petitioners had
not included this income on their 1994 Federal income tax return.
Petitioners contend that both the interest income and the
income that the bad debt deductions represent were included in
the amount set forth on the gross receipts line of the Schedules
C attached to their 1994 and 1995 Federal income tax returns.
Petitioners' 1994 and 1995 Federal income tax returns were
prepared by a tax preparation firm that used worksheets to
prepare those tax returns. Petitioners destroyed these
worksheets after their 1994 and 1995 Federal income tax returns
were filed.
Section 166(a) provides that there shall be allowed as a
deduction any debt which becomes worthless within the taxable
year. However, worthless debts arising from unpaid wages,
salaries, fees, rents, and similar items of taxable income are
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