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v. Commissioner, 77 T.C. 582, 598 (1981); Andrew v. Commissioner,
54 T.C. 239, 248 (1970); sec. 1.166-2(a), Income Tax Regs.
Petitioners argue that the loans became worthless in 1992
when the auction was destroyed by fire. Petitioner argues that
the auction was his father’s sole source of income, the
destruction of which resulted in an inability to repay the
advances. It is not entirely clear from the record who owned the
auction at the time of the fire. It appears from the record,
however, that the auction was owned entirely by petitioner’s
father and/or stepmother.
Although legal action by petitioner against his father is
not required to show his father’s inability to repay the
advances, in the absence of such action, petitioner must still
show that legal action would not have resulted in the
satisfaction of the debt. See sec. 1.166-2(b), Income Tax Regs.
Petitioner’s father owns the land upon which FAP is located.
Schedule D, Capital Gains and Losses, of John and Willene Flood’s
1992 income tax return shows the sale of a building for a gain of
$30,000, 2 weeks before the auction fire. Additionally, Schedule
E, Supplemental Income and Loss, of the 1992 income tax return
shows that the couple owned rental property at the time of the
fire.
Accordingly, petitioners have failed to show that the
advances were loans. Even if petitioners had shown that the
advances were debt within the meaning of section 166, petitioners
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