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from James. Absent such proof, petitioners have failed to
establish that the alleged debt was worthless in 1992.
Did Petitioners Sustain Capital Losses Under Section 165(f)?
Petitioners’ final argument is that, at a minimum, they
should be entitled to a capital loss under section 165(f).
Section 165(f) provides that “Losses from sales or exchanges of
capital assets shall be allowed only to the extent allowed in
sections 1211 and 1212.”
Since we have concluded that the advance made by James was a
contribution to the capital of Quotum, we treat petitioners’
argument as a claim for a capital loss attributable to worthless
securities under section 165(g). Section 165(g) provides, in
pertinent part, that if any security which is a capital asset
becomes worthless during the taxable year, the resulting loss
shall be treated as a loss from the sale or exchange of a capital
asset. The term security includes stock in a corporation. See
sec. 165(g)(2)(A).
Petitioners’ argument for a capital loss, like all of their
other arguments, fails for lack of proof. The record reflects
that, in consideration of the advance of $650,000 by James, he
was entitled to receive a specified amount of Quotum’s stock.
The stock was apparently issued to an S corporation, Candid,
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