- 16 -
elements, he may also deduct the bad debts claimed for 1993.
A bad debt is deductible in the taxable year during which it
becomes wholly or partially worthless. Sec. 166(a). Generally,
the taxpayer must show that the debt is worthless and the year
the debt became worthless. See Rule 142(a); Mueller v.
Commissioner, 60 T.C. 36, 41 (1973), affd. in part, revd. in part
and remanded 496 F.2d 899 (5th Cir. 1974). Petitioner has made
no argument that the burden of proof shifting provisions of
section 7491(a)(1), effective for Court proceedings arising in
connection with examinations commencing after July 22, 1998, have
application to this case, nor has he offered any evidence that he
has complied with the requirements of section 7491(a)(2).
Worthlessness
There is no standard test or formula for determining the
worthlessness of a debt within a given taxable year; the
determination depends on the particular facts and circumstances
of each case. Crown v. Commissioner, 77 T.C. 582, 598 (1981).
The facts and circumstances must show both the fact and the year
of worthlessness. Lucas v. Am. Code Co., 280 U.S. 445, 449
(1930); Crown v. Commissioner, supra. It is generally accepted
that the year of worthlessness is fixed by identifiable events
that form the basis of reasonable grounds for abandoning any hope
of recovery. Crown v. Commissioner, supra at 598; Federated
Graphics Cos. v. Commissioner, T.C. Memo. 1992-347. In
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011