- 10 -
receivable than an expense. Accordingly, petitioner is not
entitled to a deduction for these amounts under section 162(a).
With respect to the business bad debt claim, section 166(a)
allows a deduction for “any debt which becomes worthless within
the taxable year.” Under section 1.166-1(c), Income Tax Regs.,
the debt must be “bona fide”, defined as “a debt which arises
from a debtor-creditor relationship based upon a valid and
enforceable obligation to pay a fixed or determinable sum of
money.” Furthermore, taxpayers must exhaust the usual and
reasonable means of collection before they are entitled to a
deduction. See C.S. Webb, Inc. v. Commissioner, 1 B.T.A. 269
(1925). When efforts to collect become futile, the deduction is
allowed. See Alexander v. Commissioner, 26 T.C. 856 (1956).
Petitioners’ evidence concerning their entitlement to a
business bad debt deduction consisted of petitioner’s testimony
that (1) Lee owed petitioner “over a million dollars,” and (2)
Lee filed for bankruptcy in “either December of ‘92 or January of
‘93.” Aside from these two statements, petitioners presented no
evidence to establish their entitlement to a business bad debt
deduction under section 166(a). Petitioners failed to show that
there was a bona fide debt that became worthless during the years
in issue, or that they attempted to collect any such debt from
Lee. Accordingly, they are not entitled to a business bad debt
deduction under section 166(a).
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011