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OPINION
I. Bad Debt Deductions
Section 166 authorizes a taxpayer to deduct any debt that
becomes worthless within the taxable year. Nonbusiness bad debts
are treated as losses resulting from the sale or exchange of a
short-term capital asset. Secs. 166(d)(1), 1211(b), 1212(b).
Business bad debts are deductible as ordinary losses to the
extent of the taxpayer’s adjusted basis in the debt. Sec.
166(b).
In order for petitioner to prevail on the bad debt issue,
petitioner must first establish that: (1) A bona fide debt
existed between petitioner and G�nther which obligated G�nther,
the alleged debtor, to pay petitioner a fixed or determinable sum
of money; (2) the debt was created or acquired in, or in
connection with, petitioner’s trade or business; and (3) the debt
became worthless in the year the bad debt deduction was claimed.
Sec. 166; United States v. Generes, 405 U.S. 93 (1972); Calumet
Indus., Inc. v. Commissioner, 95 T.C. 257, 284-285 (1990); Beaver
v. Commissioner, 55 T.C. 85, 91 (1970); Black v. Commissioner, 52
T.C. 147, 151 (1969). A gift or contribution to capital is not
debt within the meaning of section 166. Calumet Indus., Inc. v.
Commissioner, supra at 284; Kean v. Commissioner, 91 T.C. 575,
594 (1988). Petitioner bears the burden of proving that it is
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