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taxpayer’s trade or business.” Sec. 166(d)(2). To qualify for a
deduction for a worthless nonbusiness debt, the individual
taxpayer must show that the debt became totally worthless within
the taxable year in which the deduction is claimed because no
deduction is “allowed for a nonbusiness debt which is recoverable
in part during the taxable year.” Andrew v. Commissioner, 54
T.C. 239, 245 (1970); sec. 1.166-5(a)(2), Income Tax Regs. A
debt is not worthless because the debtor is having financial
difficulties. Kelly v. Commissioner, T.C. Memo. 1992-452.
Only a bona fide debt qualifies for purposes of section 166.
A bona fide debt “arises from a debtor-creditor relationship
based upon a valid and enforceable obligation to pay a fixed or
determinable sum of money.” Sec. 1.166-1(c), Income Tax Regs.
Whether the parties actually intended the transactions to be
loans depends on whether the advances were made “with a
reasonable expectation, belief, and intention that they would be
repaid.” Goldstein v. Commissioner, T.C. Memo. 1980-273. The
existence of a bona fide debt is a factual inquiry that turns on
the facts and circumstances of the particular case. Dixie
Dairies Corp. v. Commissioner, 74 T.C. 476, 493 (1980); Litton
Bus. Sys., Inc. v. Commissioner, 61 T.C. 367, 376-377 (1973).
The objective indicia of a bona fide debt include whether a note
or other evidence of indebtedness existed and whether interest
was charged. Clark v. Commissioner, 18 T.C. 780, 783 (1952),
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