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Respondent disputes whether Islamic law (which became more
pronounced after the establishment of Islamic Republic)
recognized the 10-year period of limitations pursuant to the
Iranian Commercial and Civil Codes upon which petitioners claim
they relied.11
We find it unnecessary to consider all of these contentions
because, even if we viewed the facts most favorably to
petitioners (which we do not), petitioners cannot prevail.
Bad Debt Deduction
Section 166(a) provides that there shall be allowed as a
deduction any debt which becomes worthless within the taxable
year. A taxpayer is not entitled to a deduction for a worthless
debt under section 166 in connection with an income item unless
it has been included in the taxpayer’s gross income for Federal
income tax purposes either for the year for which the deduction
is claimed or for a prior year. See Gertz v. Commissioner, 64
T.C. 598, 600 (1975); Garrison v. Commissioner, T.C. Memo. 1994-
200, affd. without published opinion 67 F.3d 299 (6th Cir. 1995);
sec. 1.166-1(e), Income Tax Regs. Petitioners never included the
account receivable for the sale of GMS in their income.
Therefore, petitioners are not entitled to a bad debt deduction
because Ammareh defaulted.
11 Islamic commentators proclaimed that limiting the time
to make rightful claims is against Islamic principles.
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