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Petitioners claim that this section does not apply to them
since the business was sold in 1976 when they were not residents
of the United States and not required to file a 1976 tax return.
We addressed a similar issue in Antuna v. Commissioner, T.C.
Memo. 1970-290, where we held that the taxpayer was not entitled
to a bad debt deduction resulting from a Cuban expropriation of
an account receivable. The taxpayer could not establish that he
had previously reported the account receivable as income on
either his Cuban or his U.S. tax return. In a footnote to this
opinion we stated:
We need not decide whether inclusion of an item in a foreign
income tax return furnishes a basis for purposes of the bad
debt * * * provisions, as does inclusion in a United States
income tax return. Since petitioner has failed to establish
the contents of his return, we do not reach this question.
[Id.]
Petitioner admitted that the gain (or loss) from the sale of
GMS to Ammareh was not reported on any U.S. or Iranian tax
return. Therefore, petitioner does not have a basis in the
claimed bad debt. Accordingly, petitioners are not entitled to a
bad debt deduction for 1989 nor any carryovers of net operating
losses. Respondent is sustained on this issue.
Deduction of Legal Expenses
Section 162 allows a deduction for ordinary and necessary
expenses paid or incurred in carrying on a trade or business.
Section 212 allows an individual to deduct all of the ordinary
and necessary expenses paid or incurred in connection with (1)
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