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entitled to a business bad debt deduction under section 166.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).19
Petitioner contends it properly deducted the intercompany
account balances owed to it by G�nther as business bad debts
under section 166. Respondent disagrees, contending that the
amounts constituting the intercompany account balances
(hereinafter collectively referred to as advances) were
contributions to the capital of G�nther and that, even if the
advances qualify as bona fide debt, the debts were not worthless
in the years the deductions were claimed.
A. Were the Advances Made to G�nther and Charged to the
Intercompany Account Bona Fide Debt?
1. In General
In order for us to find that a bona fide debt was created
for purposes of section 166, petitioner must prove that there was
“a genuine intention to create a debt, with a reasonable
expectation of repayment” and that the intention was consistent
with the “economic reality of creating a debtor-creditor
relationship”. Litton Bus. Sys., Inc. v. Commissioner, 61 T.C.
367, 377 (1973). Whether the requisite intention to create a
true debtor-creditor relationship existed is a question of fact
to be determined from a review of all the evidence. Id. Factors
19The burden of proof provisions of sec. 7491 do not apply
here because the examination in this case began before July 22,
1998. See Internal Revenue Service Restructuring & Reform Act of
1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726.
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