Khalil and Lana K. Hamdan - Page 16




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         contributions.  Petitioners argue that they were loans and that they            
         are entitled to a $357,557 bad debt deduction for 1990 (which can               
         be carried back to 1989, the year at issue), calculated as follows:             
               HPD’s negative retained earnings          ($1,357,557)                    
               HPD’s capital stock                         1,000,000                     
                    1990 bad debt                            357,557                     
               Generally, taxpayers may deduct the value of bona fide debts              
         owed to them that become worthless during the year.  See sec.                   
         166(a).    Bona fide debts generally arise from valid debtor-creditor           
         relationships reflecting enforceable and unconditional obligations              
         to repay fixed sums of money.  See sec. 1.166-1(c), Income Tax Regs.            
         For section 166 purposes, contributions to capital do not constitute            
         bona fide debts.  See Kean v. Commissioner, 91 T.C. 575, 594 (1988).            
         The burden of establishing that the advances were loans rather than             
         capital contributions rests with the taxpayers.  See Rule 142(a).               
               Courts look to the following nonexclusive factors to evaluate             
         the nature of transfers of funds to closely held corporations: (1)              
         The names given to the documents evidencing the indebtedness; (2)               
         the presence or absence of a maturity date; (3) the source of                   
         repayments; (4) the right to enforce repayment of principal and                 
         interest; (5) participation in management; (6) whether the taxpayers            



               5(...continued)                                                           
          6213(a); Rule 13(a); Calumet Ind. v. Commissioner, 95 T.C. 257,                
          274 (1990) (citing Lone Manor Farms, Inc. v. Commissioner, 61                  
          T.C. 436, 440 (1974), affd. without published opinion 510 F.2d                 
          970 (3d Cir. 1975)).  Thus, we have jurisdiction to determine                  
          whether petitioners are entitled to a bad debt deduction in 1990               
          and are entitled to a net operating loss carryback to 1989.                    



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