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Did Petitioners Demonstrate That the Debt Was Worthless?
Petitioners contend that they have demonstrated that the
alleged debt is worthless because Michael Donnelly declared
bankruptcy, and the debt in question was discharged. Although
bankruptcy of the debtor “is generally an indication of the
worthlessness of at least a part of an unsecured and unpreferred
debt”, sec. 1.166-2(c)(1), Income Tax Regs., the bankruptcy of
Michael Donnelly does not establish the worthlessness of the
alleged debt in this case. Petitioners’ argument that a bona
fide debt was created is based on the promissory note allegedly
executed by both Michael Donnelly and Brian Wilcox. Petitioners
have made no showing whatsoever regarding the ability of Brian
Wilcox to pay the balance owed under the note.
Regarding Christopher’s transfer of $150,000 to James, the
record shows only that Christopher’s check was delivered to James
after James had already transferred $650,000 to Quotum, and the
check was deposited in a local bank. There is no evidence
proving that James subsequently transferred Christopher’s money
to Quotum or used the money in an effort to obtain Russian
airplanes.12 Petitioners have not shown on these facts that
Christopher could not request and obtain repayment of his advance
12 James could not recall or explain what he did with
Christopher’s funds.
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