Allen C. Chamberlin and Martha L. Chamberlin - Page 15

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          wholly separate organization that operated free and clear of                
          Pharmacare’s former debt, and any claims that petitioner had                
          against Pharmacare were resolved with that corporation’s                    
          bankruptcy discharge.  The latest date when the loss would have             
          been realized was 1982, the year petitioner filed his claim                 
          against the bankruptcy estate of Pharmacare.  At that point, he             
          had no realistic possibility of recovery.  See Morton v.                    
          Commissioner, 38 B.T.A. 1270, 1278-1279 (1938), affd. 112 F.2d              
          320 (7th Cir. 1940); Mack v. Commissioner, T.C. Memo. 1995-482;             
          sec. 1.165-1(d), Income Tax Regs.  Therefore, the loss could only           
          be used by petitioners as a section 172 net operating loss (NOL)            
          carryover or capital loss carryover during the years in issue,              
          depending on the character of the loss.                                     
               The $450,000 loss, arising from the Freedom Federal loan               
          proceeds, was realized by petitioner in 1985.  A bad debt                   
          deduction is realized in the year it becomes worthless.  See sec.           
          1.166-1(a), Income Tax Regs.  The question of when a bad debt               
          becomes worthless is a factual question based on all of the                 
          surrounding circumstances.  Although bankruptcy is a strong                 
          indicator of when a debt becomes worthless, it is not an absolute           
          rule that a loss becomes recognizable upon the filing of a                  
          petition in bankruptcy.  See sec. 1.166-2, Income Tax Regs.                 

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